Looking at the US Executive Order on Crypto
In June 2022, The United States of America was set to start taking a deeper look into regulating the cryptocurrency space. Here is a short explainer providing some background regarding the priorities of the crypto executive order.
What are the goals of the Executive Order?
US President Joe Biden signed an executive order on March 9, 2022 in regards to cryptocurrencies, while noting that approximately 40 million Americans, or about 16% of American adults, have cryptocurrency holdings. They also noted that over 100 other countries have been exploring the concept of a CBDC (Central Bank Digital Currency), as digital versions of fiat currencies. The crypto executive order will not impact the status-quo immediately, as instead of providing directives for how federal agencies should act, the order instead calls for agencies to prepare reports over various time frames ranging from several months to a year on how they think cryptocurrency impacts their respective domain (i.e. energy consumption for the EPA) and what regulations they think should thus come about.
In the related press release, the Biden administration specifically brought up its six primary concerns it hopes to address through the executive order:
- Consumer Protection
- Global Financial Stability
- Money Laundering
- Promote US Technology Competitiveness
- Financial Inclusion
- Responsible Innovation
What does this mean for the cryptocurrency space?
Regulation is not inherently bad news. While regulation can bring about more restrictions, they also provide clarity of rules and are a sign of legitimacy. Over the past decade, cryptocurrency and blockchain technologies have long had a notorious reputation as being used as the system of choice for illicit marketplaces such as the Silk Road, in addition to being utilized to take advantage of investors hoping to “get-rich-quick” through bogus initial-coin-offerings.
Over the past few years, the market has matured significantly with criminal usage of cryptocurrency now being a minor component of the ecosystem instead of being a dominant aspect. Despite this maturation there are still several aspects of common cryptocurrency usage that conflict with securities regulations in many countries, including the US. One of the most notable examples of this would be the proliferation of fractional NFTs. A security is fungible, and a NFT is by definition, not fungible, leaving the question of how could a NFT be considered a security? Fractional NFTs enable multiple individuals to purchase pieces of a NFT, and while the whole NFT is not fungible, the fractional parts are fungible – and thus a security. This is not dissimilar to the Masterworks art investing platform.
For those in the iGaming industry, we know from experience that having clear guidelines is preferable to operating in the grey market. When operating in a gray market, your services could be cut off at any moment – with no heads up – and to boot, you are now on that government’s radar as having skirted the rules, meaning it could be difficult to secure proper licensing in that jurisdiction in the future. Further, the iGaming industry is keenly aware of the benefits that regulation provides in removing public stigma. In the US, most gambling was treated as a criminal or degenerate activity for decades. Nowadays, betting odds from various operators are visible on nearly every broadcasted sporting event.
Article Update – July 2023
Here we are a year later! Since we first published this article, there has been a bipartisan bill introduced to the US senate. This bill, the Responsible Financial Innovation Act, provides insight into what the cryptocurrency community can expect in the coming years from the US government. Some of the proposed changes include moving the majority of cryptocurrency oversight from the Securities and Exchange Commission (SEC) to the Commodity Futures Trading Commission (CFTC), as well as establishing a robust framework and guidelines for coins that classify as stablecoins.
Overall, the suggested framework appears to be a positive outlook for the sector. Moving the primary regulative authority from the SEC to the CFTC is much more friendly for founders in the crypto space, while also acknowledging that the majority of cryptocurrency and tokens are not securities. Meanwhile, having a consistent set of rules for stablecoins is much needed in order for the cryptocurrency market to grow. Stablecoins are the backbone for crypto pairs in the exchanges, and investors need to know, for certain, that the token they believe to be worth “x” in fiat is actually worth “x” in fiat if the sector wants more retail adoption and institutional investors to participate. The Luna/Terra debacle in May has proved that the Wild West mentality of crypto, that originally helped the space grow and flourish, is now inhibiting its progress in gaining traction.
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