White House Criticizes Crypto as Providing ‘No Widespread Economic Benefits’

WASHINGTON – No aspect of the cryptocurrency industry escaped criticism in a scathing White House report this week.

The White House Council of Economic Advisers delivered a 35-page takedown of the idea that digital assets like Bitcoin are useful as an alternative to government-backed currency, the claim that crypto’s underlying distributed ledger technology may have a utopian application, and the notion that it can serve as a hedge against inflation.

“Although the underlying technologies are a smart solution to the problem of how to conduct transactions without a trusted authority, cryptoassets currently do not provide widespread financial benefits,” the council writes. “They are largely speculative investment vehicles and are not an effective alternative to fiat currency. Moreover, they are currently too risky to function as payment instruments or expand financial inclusion.”

The extended crypto criticism, which fills one chapter of a book-length annual report the White House sends to Congress each year, represents a stark change in tone from President Joe Biden’s administration.

A year ago, Biden signed an order asking federal agencies to look at ways to reduce the risk of crypto without stifling “financial innovation.” This week’s report makes clear that the White House believes crypto can’t innovate much beyond the same kinds of financial disasters that prompted Congress to regulate the banking industry a century ago.

“The risk presented by cryptoassets stems from excessive speculation, high leverage, ongoing risk, environmental damage from cryptoasset mining, and fraudulent activities that harm retail investors and companies,” the report said.

The White House also notes that crypto-assets “are the standard form of payment extorted from victims of ‘ransomware,’ where a malicious actor hacks into an organization and demands payment to release control of the victim’s network and often allegedly forgo leaking the victim’s stolen data .”

The supposed promise of crypto is that it operates on a peer-to-peer network of computers without an institutional intermediary such as a bank or a government. In the White House’s view, that is also its fundamental problem.

What explains the White House’s newfound hostility? When Biden issued his executive order, the crypto industry was worth more than $3 trillion and had been flying high, with stars like Tom Brady and Larry David touting its benefits in Super Bowl ads.

Since then, crypto has suffered several high-profile embarrassments, such as the collapse of a so-called “stablecoin” and the crypto exchange FTX, whose founder Sam Bankman-Fried allegedly committed all kinds of financial crimes in the course of becoming a media darling. Over the past year, the industry has lost about two-thirds of its value — meaning people who invested on Brady’s advice likely lost money.

Crypto players had hoped that Congress might step in and free the industry from strict regulation by increasingly hostile federal agencies such as the Securities and Exchange Commission; The White House indicated in its report that no new laws are necessary.

“Much of the activity in the cryptoasset space is covered by existing regulations and regulators are expanding their scope to bring a large number of new entities under compliance,” the White House said.

The Blockchain Association, an industry lobby group, said Tuesday it was disappointed by the White House report.

“We urge the Biden administration to consider how it will be remembered: as a leader of deep innovation or a roadblock to a global technology revolution,” Blockchain Association CEO Kristin Smith said in a statement.

Sen. Cynthia Lummis (R-Wyo.), a leading crypto cheerleader on Capitol Hill and herself a major crypto investor, also pushed back against the White House report during an interview with HuffPost, saying the White House should support new legislation to regulate the industry.

Lummis then held up her Apple iPhone and asked Siri, the phone’s digital voice assistant, to tell her the current market price of a Bitcoin. Siri complied by saying “$28,700.” (An hour later, Bitcoin’s price fell to around $26,800.)

“I would suggest that commodities have a value and Bitcoin is a commodity,” Lummis said, pleased with Siri’s response. “If a person is looking for short-term gain, it’s the wrong asset to be in. Just like any other asset, it should be part of a diversified asset allocation. But to suggest that it has no financial benefit or value is completely wrong.”