US moves to regulate cryptocurrency; Biden likely to sign executive order soon

The executive order this week is likely to direct agencies across the government including the Departments of Treasury, State, Justice and Homeland Security to study cryptocurrencies and a central bank digital currency (CBDC), and come up with a government strategy to regulate digital assets, Yahoo Finance reported.

White House officials began work on centralizing its overall strategy for cryptocurrencies in August last year.

Bloomberg reported the new first last month quoting people familiar with the matter. The report said senior administration officials have held multiple meetings on the plan, which is being drafted as an executive order. The directive puts the White House at the center of Washington’s efforts to deal with cryptocurrencies.

Federal agencies have taken a scatter-shot approach to digital assets over the past several years and Biden’s team is facing pressure to lead on the issue. Industry executives often bemoan what they say is a lack of clarity on US rules and others worry that an embrace by China and other nations of government-backed coins could threaten the dollar’s dominance.

The US action comes as Bitcoin, the world’s largest and most popular cryptocurrency, declined nearly 1.9% to $37,673. Bitcoin is down about 19% in 2022 (year-to-date or YTD) so far whereas, it is still over 46% far away from its record high of near $69,000 it hit in November 2021.

Bitcoin dropped to a more than two-week low as fears of a possible Russian invasion of Ukraine prompted some analysts to predict the largest cryptocurrency could slide toward the key $30,000 level. The crypto dipped below $40,000 level over the weekend and kept weakening as the Ukraine crisis deepened, undermining the argument that cryptocurrencies are a haven in times of geopolitical turmoil.

The cryptocurrency policy rollout was delayed by a dispute between White House officials and Treasury Secretary Janet Yellen over the scope of a pending executive order that could include a digital dollar, according to a separate Bloomberg report.

The late-stage draft of the executive order details economic, regulatory and national security challenges posed by cryptocurrencies, Bloomberg report said. It would call for reports from various agencies due in the second half of 2022.

One such study would come from the Financial Stability Oversight Council, a group that includes the heads of Washington’s top financial watchdogs, looking at the possible systemic impacts of digital assets. Another government report would look at illicit uses of the virtual coins.

Meanwhile, the directive would also require other agencies to weigh in — carving out roles for everyone from the State Department to the Commerce Department. Some of those tasks will be meant to ensure that the US remains competitive as the world increasingly adopts digital assets.

The administration’s plan, including the directives in the order, could be further modified before it’s finalized.

The administration is also expected to weigh in on the possibility of the US issuing a government-backed coin, known as a central bank digital currency or CBDC, the people familiar with the talks said. But, according to one of the people, the administration is likely to hold off on taking a firm position, as the Federal Reserve is still considering the issue. On Thursday, the Fed released a preliminary paper on the matter and opened a public comment period through May 20.

A CBDC could be a way for the US to stay competitive with the explosive growth of private cryptocurrencies and coins produced by other nations, including China. The Fed said it does not intend to move forward without the support of the White House and Congress.

(With inputs from Bloomberg)