The White House this month released its first comprehensive framework for the responsible development of digital assets following President Joe Biden’s March 9 executive order. The order asked regulators to assess the industry and develop recommendations to safeguard investors while promoting innovation. While more work is needed, the framework is a step in the right direction as it shows regulators’ willingness to provide the industry with the much-needed regulatory clarity it seeks.
The framework’s recommendations addressed six key areas to protect market participants, provide access to financial services and promote innovation. While the Biden administration has focused more on protecting industry consumers in the past, it’s encouraging to see the framework focus on all three industry groups: consumers, investors and businesses. The frame cited a 2018 Wall Street Journal A study showed that nearly a quarter of coin offerings had red flags such as plagiarized documents and promises of return on investment. To foster protection, the framework encouraged regulators to “aggressively pursue” illegal practices in the industry, redouble enforcement efforts, and increase public awareness efforts to promote education in this area.
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In addition, the framework provided steps for both the Biden administration and Congress to fight illicit financing, including amending the Bank Secrecy Act, monitoring transactions, and exposing and disrupting illicit actors .
The framework also discussed promoting access to safe and affordable financial services. This is one of the key positives for the cryptocurrency industry, as it has provided access to financial services to millions of people around the world. It cited the fact that nearly 7 million Americans are unbanked and another 24 million rely on unbanked services, which can be costly. By encouraging payment providers to increase instant access to payment systems, prioritizing the efficiency of cross-border payments, and supporting research in technological and socio-technological disciplines, the framework can help provide much-needed financial services to those who they need
Biden will also consider creating a federal framework to regulate non-bank payment providers, some of which now offer cryptocurrency services. The framework will also provide financial stability for the Treasury to strengthen the ability of financial institutions to identify, track and analyze emerging strategic risks and mitigate cyber vulnerabilities.
The recommendations promote the advancement of responsible innovation in digital assets. Biden is doing this by having the Office of Science and Technology Policy and the National Science Foundation (NSF) develop an agenda for research and development of digital assets, as well as providing regulatory guidance and technical assistance to innovative American companies in the sector. NSF will also support social science and education to promote the safe and responsible use of digital assets.
This is a step in the right direction for regulators as it allows them to first understand the technological benefits of this technology while also tracking the environmental impacts in order to provide a clear strategy for the industry moving forward. This will allow the United States to strengthen its global financial leadership and competitiveness by helping innovative technology companies and digital assets become stronger in international markets, as well as helping foreign and developing countries build their infrastructure digital assets with US values intact.
The area where the framework has received the most resistance is related to the exploration of a US central bank digital currency (CBDC). While at face value, CBDCs appear to be the best of fiat currencies and cryptocurrencies, the implications can have widespread negative effects. The recommendations point to the potential benefits of a US CBDC, such as a more efficient payment system, faster cross-border transactions and environmental sustainability.
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While these are certainly positives, the main flaw of a CBDC comes from centralization. Having a centralized system governing CBDCs means they are much easier to track, have more vulnerable systems compared to Bitcoin, and can lead to a potential increase in data breaches.
That said, Biden officials are simply exploring the use case for CBDCs, meaning he and his regulators are gathering feedback to determine the best course of action.
Cryptocurrencies have been around for over a decade. However, while the industry is looking to the government to provide the regulatory clarity needed to remove much of the uncertainty and doubt, it wasn’t until this year that the industry finally got an indication of what that clarity might look like.
Biden and the regulatory agencies that submitted nine reports to him have created the first comprehensive regulatory framework for cryptocurrencies. It does a commendable job of targeting the areas most in need of regulation and increasing research in this area along with listening to market experts, what is a great first step may turn out to be exactly what the industry needs to continue to grow and innovating without a threat looming over their shoulder.
Mitesh Shah is the founder and CEO of Omnia Markets, an artificial intelligence company that provides expertise in financial analysis, trends and insights in the cryptocurrency industry. He specializes in finance and technology and has an MBA in finance from St. John’s University-Tobin College of Business, as well as a certificate in Machine Learning from Stanford University.
This article is for general information purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.