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Senators and regulators explain why the $60 billion collapse of a major cryptocurrency is not the industry's Bear Stearns moment
The White House is laying the groundwork for a government policy on digital assets as seen here.
Cryptocurrency's rapid ascent has been mostly ignored by the federal government thus far. This may change, however. In an unprecedented move, President Joe Biden ordered the Treasury Department to look into the possibility of developing a government-controlled digital currency on March 9.
Government authorities were also told to evaluate the risks posed by crypto to consumers, investors, and the financial markets as well as to offer regulatory solutions in response.
You should be aware of what the executive order comprises, as well as why it was issued and what it potentially represent in terms of regulating cryptocurrencies.
So, executive order on digital assets, what's the big deal here?"
According to the White House, its executive order on digital assets is the "first comprehensive strategy to protect consumers, financial stability and national security while also addressing the threat posed by climate change." The executive order focuses on six key areas: consumer and investor protection; financial stability; illicit activity; competitiveness of the United States; diversity and inclusion; and responsible development.
Treasury, Commerce, and Justice departments as well as the Federal Reserve, the Office of Science and Technology Policy, and other government organizations are tasked with investigating the dangers and rewards of cryptocurrencies, a market currently estimated at $1.7 trillion.
If new industry rules are to be expected, this directive suggests that they may be coming.
According to a report from the Treasury Department, it is anticipated to evaluate whether a US-backed central banking digital currency, known as a CBDC or "digital dollar," may be issued.
Is there a reason Biden gave the order?
According to the Pew Research Center, 40 million American adults, or 16% of the total population, have used, invested in, or exchanged cryptocurrencies.
With so many Americans affected by this issue, the White House is keen to strengthen its control and "safeguard against any systemic financial dangers presented by digital assets," according to the directive.
Since Bitfinex's 2016 attack, the US Department of Justice has confiscated $3.6 billion in bitcoin, making it the biggest financial seizure in history.
This is an opportunity for the United States to reclaim its position as the world's leading economic power. A framework for enhancing U.S. competitiveness and leadership in digital asset technologies is mandated under the order, which the Department of Commerce is tasked with creating.
According to Biden's directive, which notes the significant implications for "climate risk" of digital assets, there are environmental worries about the impact these assets will have.
It has been stated that bitcoin mining consumes 10 times as much energy as Finland does in a year, or around 0.5% of the world's total usage of electricity, according to the New York Times.
Why is the government so interested in cryptocurrencies at this time?
After announcing that the decision had been in the works for months, Vice President Joe Biden said that the sanctions against Russia, which included freezing the assets of people and businesses, had been in place for some time.
As a result of the executive order, agencies are required to coordinate with American allies in order to "ensure that international frameworks, capabilities, and partnerships are aligned and responsive to dangers" associated with "illicit financing and national security."
Some in Washington are concerned that the Kremlin may evade sanctions by using cryptocurrency, a decentralized system that is encrypted and more difficult to detect than standard bank transactions. There are fears that Russia's use of "digital assets and alternative payment channels" may allow sanctions to be evaded, Sen. Elizabeth Warren wrote to Janet Yellen, Secretary of the Treasury, in an open letter.
According to Warren's testimony to Fed Chairman Jerome Powell on March 4, Bitcoin is a "shadow, uncontrolled world" that politicians, billionaires and businesses in Russia may take advantage of and profit from..
Coinbase and Binance have been ordered by the White House to restrict all Russian users, Bloomberg reports. Although the exchanges have previously blacklisted thousands of Russian customers, they have refused to cooperate.
To what extent has the crypto market responded to this?
Regulators' moans may be heard across most businesses, even when the language is unclear. However, the overwhelming response from crypto traders to Biden's instruction was positive.
This new direction from Washington has given Coinbase's Chief Policy Officer Faryar Shirzad hope.
According to Shirzad's tweet, "the White House appears to recognize and embrace the revolutionary potential of digital asset technology, and the need of preserving American leadership. "Millions of people today use digital assets, and government authorities are becoming more interested in them. American life has been transformed by their presence. The White House stated today that they are aware of this as well."
According to Jake Chervinsky, the Blockchain Association's director of policies, the order was "as excellent as we could hope for"
As Chervinsky tweeted, "Anyone fearful that President Biden's executive order would mean doom and gloom for crypto may now entirely rest." As far as I'm concerned, the EO doesn't do anything like that here.."
"I'm guessing crypto is not going away," Binance CEO Changpeng Zhao playfully tweeted.
The executive order sparked a boom in cryptocurrency markets, with the most popular coin, bitcoin, surging nearly 9% last week to $42,000. Nearly $2,800 was the price of Ether, the second-largest cryptocurrency, at the time.
What's the next step?
The next two to six months are anticipated to see government entities commissioning research on the dangers and advantages of bitcoin. They may be implemented as departmental rules, or they may be sent to Congress for consideration as part of a new piece of legislation.
The emergence of a digital dollar is something that industry experts will be keeping an eye on.
Lisa Ledbetter, a partner at corporate law firm Reed Smith and a former Treasury Department attorney, told Yahoo Finance that the adoption of the US CBDC may fundamentally change the function of both central and commercial banks.
An presidential order is "a policy and practical balancing act," according to Ledbetter. International repercussions would necessitate that the private sector and foreign central banks be included in the process of developing a US CBDC.
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