After a year of collapsing stablecoins, bankrupt crypto lenders, a record $20 billion in theft, scams and money laundering, and of course FTX.
If you want to see what difference a year has made in the Biden administration's perspective on a regulatory framework for cryptocurrencies, you don't need to look much beyond the titles of its two major statements on the topic.
In March 2022, we had "Executive Order on Ensuring Responsible Development of Digital Assets."
On Friday, Jan. 27, it jumped back in with "The Administration's Roadmap to Mitigate Cryptocurrencies' Risks."
"Responsible development" versus "mitigate."
To be fair, in many ways they said the same things.
On the one hand: Risks to consumers and the stability of the financial system; money laundering and crime; national security and cyber crime; and energy use and climate change.
On the other: Technological and economic competitiveness, and payments and financial inclusion.
However, the most recent version did not touch on "human rights, privacy and democratic values" like the March 2022 executive order. Nor did it mention maintaining global financial leadership and the primacy of the U.S. dollar — both related to the discussion over the need for a central bank digital currency, or digital dollar.
Beyond that, the negatives got a lot more play than the positives, which were limited to a couple of sentences.
A Terrible Year
In the current version, there are a lot more specific examples of danger to point to, thanks to the collapse of UST and LUNA, a subsequent wave of bankruptcies, and the massive fraud allegedly perpetrated by now-bankrupt FTX's founder and CEO, Sam Bankman-Fried. It said:
"Many everyday investors who trusted cryptocurrency companies — including young people and people of color — suffered serious losses, but, thankfully, turmoil in the cryptocurrency markets has had little negative impact on the broader financial system to date."
It added that while cryptocurrencies are new, "the behavior we have seen some cryptocurrency companies exhibit and the risks posed by this behavior are not."
And the goals of the administration were focused on protection, not growth. It said:
"Our focus is on continuing to ensure that cryptocurrencies cannot undermine financial stability, to protect investors, and to hold bad actors accountable."
That was all in the first paragraph.
Pressuring Congress
After calling for a substantial crackdown by regulators and law enforcement, the administration took a combative tone with Congress, saying it "needs to step up its efforts" by empowering regulators, strengthening disclosure requirements, increasing penalties for financial crimes using crypto, and increasing funding for law enforcement.
As well as providing a regulatory framework for stablecoins specifically. That would almost certainly include a requirement that all stablecoins be backed one-to-one by fiat or highly liquid investments — leaving algorithmic stablecoins in an uncertain position
It also warned that Congress could make things worse, for example by passing legislation preventing "mainstream institutions, like pension funds, [from diving] headlong into cryptocurrency markets." Which probably means trouble for Fidelity Investment's heavily criticized proposal to allow consumers to put up to 20% of their 401(k) investments in crypto.
