The Biden administration took aim at cryptocurrencies in a new report arguing that many aspects of the digital asset ecosystem are creating issues for consumers, the financial system and the environment.
Monday's report comes amid growing industry concern that federal regulators are looking to de-bank crypto companies, though state and federal regulators have thus far denied these claims. Still, the tone of the report is unlikely to assuage these concerns.
Matthew Homer, a former deputy superintendent with the New York Department of Financial Services, told CoinDesk the report was a "damning indictment of the space that makes [the administration's] policy position crystal clear."
"The amount of attention given to digital assets is substantial, especially when viewed in comparison to other areas of financial services that have arguably been far more detrimental over the past few weeks. The assessment is striking in its definitive tone and broad brush strokes," he said.
The report looked at a number of claims and stated goals from the crypto industry, ranging from cryptocurrencies' role as investment vehicles and payment tools to its potential use in payment infrastructure. The report said that "many [cryptocurrencies] do not have a fundamental value" and noted other issues with the sector.
"It has been argued that crypto assets may provide other benefits, such as improving payment systems, increasing financial inclusion and creating mechanisms for the distribution of intellectual property and financial value that bypass intermediaries that extract value from both the provider and recipient. Looking under the hood at these arguments, however, shows a more complicated picture. So far, crypto assets have brought none of these benefits," the report said.
Various disasters in the crypto sector, including last year's collapse of Terra, BitConnect and FTX, were cited as examples of how everyday Americans were harmed.
Other examples pointed to more subtle frauds, such as Long Island Iced Tea changing its name to Long Blockchain to ride a stock price wave despite not having anything to do with blockchain at the time.
The report also took a minute to say a centralized internet is easier, citing Signal creator Moxie Marlinspike.
It mentioned that forthcoming systems like the real-time payment FedNow network "could bring significant benefits to vulnerable segments of the populations."
"Some have suggested that near-instant digital payment systems like FedNow may reduce the need for circulating digital money," the report said. "In this case, the benefits of circulating digital money after FedNow is launched may be minimal. In fact, Federal Reserve Governor Michelle Bowman commented in August 2022 that 'my expectation is that FedNow addresses the issues that some have raised about the need for a [central bank digital currency].'"
Despite listing out these concerns, the report did not delve deeply into recommendations for future regulations or congressional actions that could address the stated risks.
The section's conclusion acknowledged that the underlying distributed ledger technology "may still find productive uses in the future" for both government entities and private companies.
The report also acknowledged that "some crypto assets appear to be here to stay," although it went on to note that "they continue to cause risks for financial markets, investors and consumers."
"Much of the activity in the crypto asset space is covered by existing regulations and regulators are expanding their capabilities to bring a large number of new entities under compliance," the report said, pointing to the Securities and Exchange Commission. "Other parts of the crypto asset space require coordination by various agencies and deliberations about how to address the risks they pose."
UPDATE (March 21, 2023, 23:45 UTC): Adds additional detail.
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