The White House issued a warning about cryptocurrency risks, pointing out last year’s many collapses. I spoke with an official from the administration about the statement, and what it means.
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“A difficult year”
The White House published last week a “A roadmap to reduce the risks associated with cryptocurrencies“Signed by”Outgoing) National Economic Council Director Brian Deese; White House Office of Science and Technology Policy Direct Arati Prabhakar; Council of Economic Advisors Chair Cecilia Rouse and National Security Advisor Jake Sullivan.
Why it is important
This statement isn’t surprising on its face. In fact, the 2022 year was a difficult one for cryptocurrency. In a previous issue of this newsletter, I mentioned that just keeping up with all the bankruptcy filings has led to a dramatic increase in court database fees. The statement does hint at a less cautious approach to cryptocurrencies than the executive order by U.S. President Joe Biden on crypto last March.
It’s time to break it down
The statement began with a short summary of “a difficult year” for crypto. It referred to the collapse of Luna & FTX, but noted that there didn’t appear to have been any contagion between the crypto industry and the wider financial ecosystem.
A senior official in the administration spoke to me about the statement and told me that it was part Team Biden’s ongoing effort to close regulatory gaps in the crypto ecosystem.
“We are hopeful that Congress will take strong actions to address the needs in this area, but we continue to push for the administrative front, implementing many of the provisions. [executive order] The official stated that the agency was “dual tracked” and offered recommendations, as well as encouraging regulators to “continue their efforts to increase enforcement and crackdown against bad practices in this space.”
Official pointed out Congressional actions such as the letter from Senator Banking Committee Sherrod Brown to Treasury Secretary Janet Yellen regarding crypto regulation and stated that the White House would be focusing more on issues such as implementing the executive orders.
The White House released a statement last week that referred to previous announcements such as the framework for digital assets and statements by federal departments – including a statement jointly issued by bank regulators – which were also made public.
“But the events over the past year have shown that we need more. Agencies have intensified their efforts to combat fraud. This includes the proliferation of misleading claims regarding crypto assets being insured under the FDIC. The statement stated that the United States is already a world leader in fighting money laundering, terrorist financing, but enforcement agencies are putting more resources into combating illicit activities involving digital assets.”
The final paragraph of the statement began with a comment about supporting responsible innovation, a line we’ve heard before. But it ended with a repeatation of the concern expressed by the authors about needing safeguards.
“I believe that, given the events of last fall, we were very conscious of the need for us to implement a lot the safeguards that were required in the FSOC reports. These included segregating customer assets and obtaining additional visibility into vertically-integrated firms, cracking down on conflicts of interest, addressing spot markets jurisdiction, and many other things. They are all part of our efforts to ensure financial stability and protection for consumers,” the official stated.
Next week will be very busy. There will be four bankruptcy hearings and a hearing on Sam Bankman Fried’s bond conditions. Also, Celsius’ bidding will be heard. Here are the highlights.
14:30 UTC (9:30 AM) ET: FTX Bankruptcy Hearing – Appointment of Examiner
12:00 a.m. UTC (16:00 UTC). ET): Genesis Bankruptcy Hearing
19:00 UTC (22:00 p.m. ET): Celsius Bankruptcy Hearing
15:00 UTC (0:00 p.m. ET): Celsius Bidding Date
18:00 UTC (11:00 p.m. ET: FTX Bankruptcy Hearing
15:30 UTC (10.30 a.m. ET): Sam Bankman Fried Bail Hearing
Change of guard
(Federal Reserve) Custodia Bank (formerly Avanti) Bank was not granted membership in the Fed Reserve System by the Fed.
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Next week, see you!