The Biden Administration has launched an official digital document outlining their strategic approach towards managing the risks associated with cryptocurrencies.
The document commences by referring to the 2022 collapse of LUNA/Terra and the consequent devastating ripple effect it had on the sector, causing multiple insolvencies. A notable mention is the bankruptcy of FTX, with the administration noting that, “Several ordinary investors, including younger individuals and ethnic minority groups, who had placed their trust in cryptocurrency enterprises, suffered significant losses. Yet, the disruption in the cryptocurrency markets has so far had minimal negative repercussions on the wider financial ecosystem.”
As per the strategic plan, the Administration aims to prevent cryptocurrencies from destabilizing the financial system, safeguard investors, and hold wrongdoers accountable. To this end, it asserts that experts within the administration have put together a blueprint for nurturing digital assets safely and responsibly while addressing their potential risks.
“At the directive of President Biden, we have spent the past year identifying cryptocurrency risks and taking action to manage them within the Executive Branch’s jurisdiction,” the document elaborates.
It continues by highlighting how certain cryptocurrency firms overlook financial regulations and risk protocols. Additionally, it alleges that cryptocurrency platforms and influencers often deceive consumers, harbor conflicts of interest, neglect to provide adequate disclosures, or commit blatant fraud.
“Government agencies are leveraging their jurisdictions to intensify enforcement where necessary and provide new directives where required,” the post asserts. “The banking authorities released joint instructions this month, emphasizing the need to segregate risky digital assets from the banking system. Numerous government bodies have initiated—or are in the process of initiating—public awareness campaigns to educate consumers about the hazards of cryptocurrency investments.”
However, given the events of the past year, these measures are deemed insufficient as per the strategic plan. Consequently, the Administration plans to disclose priorities for further research into digital assets and development, “which will aid the technologies underlying cryptocurrencies in protecting consumers by default.”
The document further delves into the Administration’s view that Congress needs to amplify efforts by broadening the regulatory scope, reinforcing transparency and disclosure mandates, allocating more resources for law-enforcement capacity building, and curtailing cryptocurrencies’ threats to the financial structure. It cautiously adds that Congress should not approve mainstream entities like pension funds to plunge recklessly into the cryptocurrency markets, as this could deepen the ties between cryptocurrencies and the larger financial ecosystem, thereby heightening systemic risks.
This strategic plan follows several previous regulatory steps concerning Bitcoin by the Biden Administration, including the “Executive Order on Ensuring Responsible Development of Digital Assets” in March 2022, and the “Climate and Energy Implications of Crypto-Assets in the United States” report in September 2022.