In March 2022, U.S. President Joe Biden raised the hopes of the entire U.S. crypto industry by signing an executive order that directed federal entities under his watch to develop plans to better regulate crypto, looking not only at potential risks but also at the sector’s possible benefits.
While Biden, as the leader of the free world, is the name and face of the order, the task of actually writing the expansive document fell to a virtual army of unsung heroes. One of the authors, Carole House, is the former White House director of cybersecurity and secure digital innovation at the National Security Council.
The order – and by extension, the agency and department responses – has so far stopped short of answering some of the crypto industry’s biggest questions. Despite that, it was widely praised when it was published. Industry lobbyists and other participants, lawyers and policymakers around the world said the order could lead to “clear regulatory guidance,” noting the call for reports and study rather than new rules. Fears that the order was the first step toward a heavy regulatory crackdown were abated.
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The executive order has led to the first attempt at creating a unified governmental approach to crypto.
“Ensuring responsible innovation and evolution of the digital asset ecosystem is essential to our national security, financial stability, economic competitiveness and continued global leadership,” a White House official said in March. “You all know that cryptocurrencies have seen explosive growth in recent years, reaching $3 trillion dollars in market cap last November. Without oversight, the explosive growth in cryptocurrency use would pose risks to Americans and to the stability of our businesses, our financial system and our national security.”
House said repeatedly that drafting the document was a team effort, with input from not just herself and fellow White House officials, but also representatives from different agencies and even some non-government participants.
“It outlined six key policy objectives that the president pointed to as key priorities for the administration and the government to be focusing on, and then some concrete steps and actions for the government to take a look at, and further examine some of the specific risks and measures that needed to be put in place,” House told CoinDesk.
The White House did not return requests for comment.
Developing a plan
The executive order stemmed from a previous comprehensive government effort, House said.
The first coordinated U.S. government regulatory effort was tied to its counter-ransomware campaign, she said.
In response, the White House created a task force to address ransomware attacks, convening international meetings, sanctioning exchanges supporting ransomware payments and offering to pay for information about attackers with crypto.
“That's pretty consistent with the way that a lot of policy-making ends up happening,” House said. Policymakers may be focused on a specific kind of risk or type of activity but would move on to a broader area. “In the wake of continuing to see illicit finance risks, as well as seeing more broadly the innovative potential of the underlying technologies, [and] also the critical need for making sure that the appropriate protections are put in place … really drove the recognition that there needed to be a whole of government approach related to digital assets.”
The order's authors included officials from the White House, various federal agencies, independent regulators and other members of the National Security Council, she said. Industry representatives, academics and advocacy groups were also consulted to identify the key policy areas and the related objectives.
Having this widespread input was important.
“Establishing the policy objectives for the first time ever, from the highest possible levels in government, from President Biden, knowing that [this entire interagency effort] is his direction, and the industry seeing that signal, has been really influential for agencies to be thinking about what they can do to help to promote that responsible development, whether through a mix of carrots and sticks, those incentives and enforcement measures, because it is a combination of all those things,” House said.
This culminated in a “whole of government approach,” as the order itself references numerous times, House said.
“Every agency that was represented in the interagency policy committee that was stood up inside of the executive order would be a stakeholder and was a part of that development process.”
House, who left public service earlier this summer and is now at a venture capital firm, has been involved with cryptocurrency-related issues for years. Prior to her role on the National Security Council, she worked on cryptocurrency issues at the Financial Crimes Enforcement Network (FinCEN), the U.S. Treasury Department’s money laundering watchdog.
“I was the lead for cryptocurrency policy there for several years,” she said. During her time with the Biden Administration she worked directly with Deputy National Security Advisor for Cyber and Emerging Technology Anne Neuberger. As far back as mid-2021 House was warning crypto developers to build tools for their products that would protect their customers and comply with the various laws governing tech and finance.
Outside the government, she’s also a senior adjunct fellow at the Atlantic Council, a think tank, where she covers crypto and other cyber issues. “I’m definitely staying in that policy space … I’ve certainly got a broader remit in my current role but I’m excited to stay a part of both the cyber and cryptocurrency policy communities.”
House describing her work on the executive order as “the greatest honor of [her] career.”
Six months in, the impact of the order is evident. It hasn’t led to any new laws or clarified some of the chief questions within the industry, but it has made the federal government’s views on crypto much clearer. To date, four parts of the Executive Branch have published nine different reports addressing everything from illicit finance concerns to energy policy around crypto mining to the technical aspects of a central bank digital currency.
“I'm so proud of the entire interagency, for coming together and just creating this first ever comprehensive framework for responsible development of digital assets,” House said. “There's some incredibly innovative content and things that we've never seen before, certainly under any U.S. approach, and that I really don't see under many, if any, international approaches.”
Much of the executive order focuses money laundering risks, terrorist financing risk or financial stability risk.
The analysis of risks goes all the way down to the personal. Part of the order directs an analysis on the potential of crypto to address financial inclusion concerns.
In a statement, Under Secretary for Domestic Finance Nellie Liang said the Treasury Department had already begun drafting reports focused on issues like the future of money and identifying risks.
“These reports identified many of the risks that we’ve seen play out in the crypto market instability and failures of the past few weeks. It is vital that policymakers move swiftly to utilize existing authorities and fill in the gaps that have been identified by putting in place sound regulatory frameworks to protect consumers and financial stability,” she said.
Of course, in December 2022 the industry is in a very different place than it was in March, marked by failures, bankruptcies and millions of dollars worth of crypto likely lost by investors. The successive failures of Terra's UST stablecoin, Three Arrows Capital, Celsius Network, Voyager Digital, BlockFi and FTX, and the broader collapse of the crypto market, which has lost $1 trillion in overall market capitalization since the order was first issued (and over $2 trillion over the past 13 months) touched on multiple issues regulators were already paying attention to, from stablecoins to lenders to exchanges.
Regulators are already evaluating whether existing or new laws would prevent the next Terra or Celsius.
“A lot of this was foreseeable, and it's extremely unfortunate so many people have been hurt in these circumstances,” House said. “But ultimately, … there are the things that some members of the sector don't want to hear, which is that there has to be more effective regulation, in some cases, enforcement in other cases, and just implementation and compliance in others.”
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