The White House published a statement warning about the risks of cryptocurrencies, pointing to last year’s various collapses. I spoke to an administration official about the statement and what it means.
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‘A tough year’
Last week, the Biden administration published a “roadmap to mitigate cryptocurrencies’ risks,” signed by (outgoing) National Economic Council Director Brian Deese, White House Office of Science and Technology Policy Director Arati Prabhakar, Council of Economic Advisors Chair Cecilia Rouse and National Security Advisor Jake Sullivan.
Why it matters
The statement, on its face, isn’t a huge surprise. The cryptocurrency industry did in fact have a tough 2022. As I wrote in a previous edition of this newsletter, just trying to keep up with the various companies that declared bankruptcy has caused our court database fees to jump dramatically. Nevertheless, the statement sort of hints at a more cautious approach toward cryptocurrencies than U.S. President Joe Biden’s executive order on crypto from last March.
Breaking it down
The statement opened with a brief summary of “a tough year” for crypto, referencing the collapse of Terra and FTX but noting there did not appear to be any contagion from the crypto industry to the broader financial ecosystem.
I spoke to a senior administration official about the statement, who told me it was part of Team Biden’s ongoing efforts to close regulatory gaps within the crypto ecosystem.
“We're hopeful that Congress will take strong action addressing needs in this space, but we're continuing to push forward on the administrative front, implementing a lot of the [executive order] recommendations as well as encouraging regulators … to continue their efforts to ramp up enforcement and crack down on bad practices in the space,” the official said, calling the approach “dual tracked.”
The official pointed to congressional actions including Senate Banking Committee Chairman Sherrod Brown’s letter to Treasury Secretary Janet Yellen on crypto regulation, and said the White House’s own efforts would focus more on issues like implementing the executive order’s recommendations.
Last week’s statement pointed to the administration’s previous announcements, such as the framework on digital assets, and statements published by departments within the federal government – including a joint statement from bank regulators, also published last week.
“But the events of the past year underscore that more is needed. Agencies have redoubled their efforts to fight fraud, including the proliferation of false or misleading claims about crypto assets being insured by the FDIC. And while the United States is already a global leader in fighting money laundering and terrorist financing, enforcement agencies are devoting increased resources to combatting illicit activities involving digital assets,” the statement said.
The statement’s final paragraph started with a comment on supporting responsible innovation – a line we’ve heard before – but closed with a reiteration of the authors’ concern about wanting safeguards in place.
“I think that given the events of the last fall, we were very mindful of the need to implement a lot of the safeguards that were called for in the FSOC reports, things like segregating customer assets, getting additional visibility into vertically integrated firms, cracking down conflicts of interest, addressing spot market jurisdiction and that's a long list. But I think they're all part and parcel of how we make sure we’ll be protecting consumers and supporting financial stability,” the official said.
Next week is going to be busy. There will be four bankruptcy hearings, a hearing on Sam Bankman-Fried’s bond conditions and Celsius Network’s bidding. Here’s what we’re watching.
- 14:30 UTC (9:30 a.m. ET): FTX Bankruptcy Hearing - Appointment of Examiner
- 16:00 UTC (11:00 a.m. ET): Genesis Bankruptcy Hearing
- 19:00 UTC (2:00 p.m. ET): Celsius Bankruptcy Hearing
- 15:00 UTC (10:00 p.m. ET): Celsius Bidding Date
- 18:00 UTC (1:00 p.m. ET): FTX Bankruptcy Hearing
- 15:30 UTC (10:30 a.m. ET): Sam Bankman-Fried Bail Hearing
Changing of the guard
- (Federal Reserve) The Fed denied Custodia (formerly Avanti) Bank’s application to become a member of the Fed Reserve System.
If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at firstname.lastname@example.org or find me on Twitter @nikhileshde.
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See ya’ll next week!
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