This year's Economic Report of the President highlighted the risks of cryptocurrency and dismissed its benefits.
Kristin Smith, CEO of Blockchain Association, said the report indicates a contrast between how the U.S. views crypto and how many other countries view crypto, and the U.S. is at risk of pushing digital asset innovation into other countries and missing out on its chance to be at the forefront of revolutionary technology. The report made several claims that contradict recent statements made in Congressional testimonies, by U.S. judges, and by crypto industry insiders.
The report identified several potential benefits of crypto, including its utility as an investment vehicle, offering a financial system that is not controlled by a government, enabling fast digital payments, improving financial technology infrastructure and increasing access to financial services. The report acknowledged that a portion of the U.S. population is "unbanked," including a disproportionate number of Black households, and crypto offers alternative financial services without barriers such as minimum account requirements.
The report then said that crypto is too volatile and presents many risks to customers and investors. "Some have hoped that crypto assets could act as a form of decentralized money, making the U.S. payment systems faster, cheaper, safe and more inclusive," the report said. "This vision has not been realized."
Smith responded to the report with a statement saying, “Today’s Economic Report of the President from the Biden administration is disappointing. While other countries are increasingly receptive to the burgeoning crypto industry, some in government appear increasingly allergic to its promise, sending companies and innovators offshore. Crypto is here for good, promising a safer and sounder financial system and a consumer-centric internet. We urge the Biden administration to consider how it will be remembered: as a leader of profound innovation or a roadblock to a global tech revolution.”
In a Senate Banking Committee hearing on crypto in February, Professor Linda Jeng of the Georgetown Institute of International Economic Law highlighted the "social value" of crypto, which she said she has already seen in action. In her testimony, she pointed to financial inclusion for unbanked individuals, as well as the use of crypto to provide aid and relief to communities that have experienced natural disasters or conflicts, as two examples.
"A substantial percentage of adults around the world today lack access to basic banking and financial opportunities," Jeng said. "Although lack of access is more significant in developing countries, it is also common in advanced economies." She cited a July 2022 World Bank report which found that approximately 1.4 billion adults around the world do not have bank accounts.
Many people who do not have bank accounts are unable to pay the associated fees or might have a poor credit score, but through decentralized finance (DeFi), "unbanked" individuals can access financial services such as borrowing and lending, trading assets and earning interest, according to CoinTelegraph.
The Biden administration's report accused crypto companies of failing to comply with regulations and claimed that existing regulations cover the crypto industry. "Much of the activity in the crypto asset space is covered by existing regulations and regulators are expanding their capabilities to bring a large number of new entities under compliance," the report said.
However, U.S. Bankruptcy Judge Michael Wiles wrote in a March 11 opinion that there is an absence of clear regulatory guidelines for digital asset issuers in the U.S., which has created a "highly uncertain" environment for those companies, many of which, Wiles pointed out, have been operating for years "without being subject to clear and well-defined regulatory requirements."
Wiles continued, "Regulators themselves cannot seem to agree as to whether cryptocurrencies are commodities that may be subject to regulation by the CFTC, or whether they are securities that are subject to securities laws, or neither, or even on what criteria should be applied in making the decision. This uncertainty has persisted despite the fact that cryptocurrency exchanges have been around for a number of years." He also pointed out that the SEC and the CFTC have sometimes acted in ways that contradict each other when it comes to the crypto industry.
Several prominent members of the crypto industry have called for clearer regulatory guidelines and demonstrated their willingness to comply with regulations, the Federal Newswire previously reported. Binance, the world's largest crypto exchange by volume, said in a blog post that although some in the crypto industry might believe that regulation contradicts the decentralized nature of crypto, Binance welcomes "the increasing involvement and actions from regulatory bodies and governments in the crypto space."
Binance said its goal has always been to protect users and encourage innovation, and it believes that greater regulatory guidance will ultimately serve to help grow the crypto industry. The blog post quoted Changpeng Zhao (CZ), the Canadian CEO and founder of Binance, who said, "Before there were clear guidelines for the industry, we have always held Binance to the highest standard to prioritize our users' best interests — a goal that we share with regulators around the world." In February, when the United Kingdom's economics and finance ministry issued a consultation paper outlining the next steps in its digital asset regulation plan, CZ said in a tweet, "Happy to see the UK, a global leader in fintech, work on progressive crypto regulation. Regulation provides certainty and a safe space for innovation."
In an interview with the Austin Journal, Brian Armstrong, the CEO of Coinbase, the largest crypto exchange in the U.S., said he welcomes regulations and believes they will play a key role in restoring trust to the industry that was damaged by FTX's high-profile bankruptcy, but that politics is proving to be a barrier in moving regulations forward.
“Some regulators don’t want regulatory clarity for crypto, because they are actually trying to curtail the industry,” Armstrong said. “Harsh rhetoric and regulation by enforcement, without creating clear rules for everyone to follow, has pushed much of the industry outside the U.S., which has resulted in American investors and businesses being harmed.”
Armstrong wrote in a December blog post that he believes regulation that provides clarity and a level playing field while leaving room for innovation will enable the crypto industry to reach its potential in benefitting other industries.
