The Executive Order (EO) cements the fact that Bitcoin and digital assets are here to stay and that the US government will move towards a balanced regulatory approach that promotes innovation while setting up guardrails to prevent abuse.
We think this EO puts to bed the notion that the US government has any interest in banning Bitcoin and other digital assets.
A US Central Bank Digital Currency (CBDC) was a big focus in the EO, which we interpret as an effort to maintain USD primacy in the face of competing CBDCs launching around the world. Nevertheless, it is possible that after the study mandated by the EO that the US will decide to move very slowly on a CBDC or may not pursue one at all in the near term.
The EO was not prescriptive in terms of regulation nor punitive, rather it was focused on information gathering and coordinating the actions of various agencies, which notably excluded strong input from financial regulators such as the SEC, CFTC, and OCC.
As next steps, we expect to see reports coming back from various agencies largely over the next 90 - 180 days. Ultimately, new regulations or legislation may come many months in the future. Indeed, the EO itself may slow down some of the efforts by Congress to legislate in this space while they wait for the mandated reports and any resulting proposals from the Administration.
Executive Order Paves way for Increasing Regulatory Clarity
Early Wednesday morning, the White House announced that President Biden would sign a long-anticipated Executive Order (EO) on digital assets. The EO has been the source of much discussion within the digital asset community since it was first reported by Bloomberg on January 21st. With the EO now out in the open, prices rallied across the board as market participants determined that the details were less onerous than imagined. A leaked response to the unreleased EO by Treasury Secretary Janet Yellen (around 8:45 pm ET on Tuesday) sparked the rally, as it highlighted the lack of any immediate negative action against digital assets in the EO. We break down the EO, look at its implications, and detail items to watch going forward.
What’s NOT in the Executive Order?
A good place to start is with what is NOT in the EO. With rumors of the EO swirling for nearly two months now, the collective imagination of the digital asset community (fueled by some sensational headlines) became detached from reality. Some important observations from the EO:
First, there is no banning of Bitcoin or any other digital assets. These include stablecoins, which have been the focus of both the Treasury and the Federal Reserve over the past few months. This reinforces something we have long said – the US government is not interested in banning Bitcoin or digital assets.
Second, there is no heavy-handed regulation in the EO that would impinge upon how digital assets are presently used. In fact, the order is not prescriptive at all. Rather, it outlines some areas of focus, emphasizes coordination across many regulators, and requests further information gathering. Our interpretation of the memo is one of a government that is open-minded about the benefits of digital asset technology, but also weighing those benefits against real-world concerns.
Third, while sanctions evasion is mentioned as a risk, it is not heavily emphasized. That is notable given the on-going conflict in Ukraine and the escalating financial sanctions imposed on Russia. This supports our belief that digital assets are not presently a factor in this conflict with regards to concerns over sanctions evasion. This jibes with recent statements from Administration officials noting that digital assets do not provide an effective way to evade sanctions.
Fourth, while the EO gives mention to the environmental impacts of digital assets, this is far from the focus of the order.
Fifth, the agencies that have made the most headlines in terms of regulating digital assets, financial regulators such as the SEC, CFTC, and OCC, are not prominently featured in the EO. The EO relies on coordination and input from other agency heads, such as the Secretary of State, the Secretary of the Treasury, and the Attorney General. This may, at least in part, reflect a reluctance by the White House to issue directives to quasi-independent regulatory bodies.
Who’s Involved?
The executive order calls for coordination across sixteen different departments and agencies, organized by National Security Advisor Jake Sullivan and Director of the National Economic Council Brian Deese. Notably, as mentioned above, The Federal Reserve, the CFPB, the FTC, the SEC, the CFTC, the FDIC, and the Office of the Comptroller, which have been some of the loudest voices in the cryptocurrency regulatory debate, are only mentioned in the interagency coordination as departments for whom representatives “may be invited to attend interagency meetings as appropriate.” Apart from the Fed, none of these other organizations are specifically tagged to do any work throughout the document. Some of the action items call for proposed legislation, which will likely involve Congress.
Next Steps and Timing
The EO requests deliverables, reports and frameworks to be produced by a number of agencies over the coming days and months. Feedback will be solicited and updates to some of the initial reports will be produced. In all, the EO outlines work to be produced over approximately the next two years, but with the bulk coming in the next 6 months. Our expectation is this work will provide the foundation for updated regulation or legislation, a process itself that will likely take many months. While it is too soon to predict the full outcome of the EO, to the extent new information is provided, we will analyze it for our clients and partners. The following chart depicts the expected timing on deliverables from the EO.
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