For some time, cryptocurrency it was considered a fringe currency, a libertarian means of investment that defied the traditional framework of brokers, trading desks, and advisers. Cryptocurrency was unique: for better and worse, it put investments (and market fluctuation) in the hands of the public.
The latest numbers from the White House now estimates that about 16% of US citizens are investing in cryptocurrencies. Gone are the days of cryptocurrency on the fringe, now it exists (albeit tentatively) in the mainstream of financial services. Despite this, it remains outside of regulatory parameters and government understanding. Or did, until this week.
On March 9, President Biden signed an executive order that will mark a turning point for cryptocurrency, not only for regulation, but also for how it is perceived around the world. The order is the first of its kind to explore a "whole of government" approach to understanding and addressing the risks and rewards of digital assets and the technology on which they are based.
The executive order, unlike other government messages thus far, acknowledges but does not dwell on the inherent risk of cryptocurrencies. Instead, he calls on government agencies and regulators to "advance US competitiveness and leadership." in digital assets, while also identifying risks and addressing "any regulatory gaps". In a week where both the SEC and CFTC issued high-value charges against fraudulent cryptocurrency actions, this is welcome and refreshing to see.
Cryptocurrencies and digital assets offer great value to the financial markets. They not only lay the groundwork for innovation and technology that revitalizes the traditional makeup of "financial services," but open up the financial space for more affordable and accessible financing. This is something the executive order acknowledges and encourages further exploration.
Until now, cryptocurrencies have been approached with caution. In the UK, for example, the Financial Conduct Authority has warned that โinvestors in crypto assets should be prepared to lose all their money.โ Such statements acknowledge the risk but take no steps to address that risk. Biden's executive order is the first step in addressing cryptocurrency risk across government and the starting point from which cryptocurrencies could become safer, more accessible, and more accepted.
Legitimation of cryptocurrencies with regulation
Biden's executive order serves several purposes, but his overarching message is that cryptocurrency should no longer sit on the sidelines, it should be brought into the mainstream and moderated accordingly. While there may be some cryptocurrency purists who will eschew this and any subsequent regulation for cryptocurrency in protection of its original libertarian roots, the majority of the cryptocurrency community will no doubt be pleased to see that it is legitimized and deemed worthy of regulatory scrutiny. .
The order does not establish new regulation, but instead encourages closing "regulatory loopholes" and "encourages regulators to ensure sufficient oversight" of the risks posed by digital assets. There is no doubt that with this new exploration, we will see new regulations or at least the expansion of existing regulatory parameters for cryptocurrencies.
While this will mean more work up front for regulatory change and compliance teams, in the long run it will create a huge advantage in the US The current regulatory framework around cryptocurrencies is fragmented at both the state and federal levels. Around the world, financial regulators have made efforts to regulate, or at least register, companies that offer cryptocurrencies. However, there remains a lack of clarity and a lack of global regulatory standards. As such, compliance teams are currently battling hundreds of fragmented regulatory obligations to create something that will withstand regulatory scrutiny.
The signing of this Executive Order has the potential to add new vigor to regulatory discussions and will undoubtedly see an alignment of regulatory understanding, which will simplify compliance matters in the long run.
Cooperation for strong regulation and standards
The time, resources, and administration required to manage regulatory non-compliance represent a large percentage of the compliance team's work. First, the team must scan the regulatory Internet and track changes where they occur. Then they must align these regulatory obligations and expectations across border and jurisdiction, understanding what takes precedence, what applies where, and for whom. Finally, these regulations should be mapped to internal policies, procedures and controls. In short, the compliance team must take different regulations apart and put them back together into a patchwork of roughly the same but slightly different regulations. The fewer standards and less collaboration, the greater the complexity.
That this executive order call for "coordinated action among all relevant US government agencies." It will be music to the ears of many. Not only could this order usher in new regulatory initiatives, but those initiatives could also be built collaboratively, meaning a greater chance for standardization and less complexity for compliance.
This is especially true given the order's request for collaboration "with our allies and partners to ensure that international frameworks, capabilities, and partnerships are aligned and responsive to risks." We are likely to see the construction of new regulations with regulators, tech leaders, and crypto founders involved in the regulatory process from the start. This will be a huge leap forward for regulatory developments and, without getting carried away, could trigger the start of a global approach to regulation.
Welcoming openness and curiosity about technology.
While Biden's executive order stops short of outlining a clear blueprint for the future of cryptocurrencies and digital assets, it does go a long way toward legitimizing digital currencies. We will certainly see a ripple effect around the world in the coming months. What is particularly important is the statement from a government that, rather than being fearful, is exploring and inquisitive about new technology and innovation. technology, especially financial services, is a natural evolution. While there will be resistance to change, the need and indeed the benefits in today's digital world will prevail. The fact that Biden has recognized the potential of the technology can only be a good thing for the end consumer, and we hope to see an improvement in regulatory effectiveness as a result.
