President’s Economic Report Blasts Crypto for ‘Ignorance of Basic Economic Principles’

The White House today poured cold water on crypto, highlighting the negative aspects of digital assets through a massive, 513-page annual report.

The first reference to digital assets in the 2023 Economic Report of the President – released alongside an annual update issued by the Council of Economic Advisers – claims that “blockchain technology has fueled the emergence of financially innovative digital assets that have proven highly volatile and subject to fraud .”

And it was on page 43.

“Although proponents often claim that digital assets, especially cryptoassets, are a revolutionary innovation, the design of these assets often reflects an ignorance of basic economic principles that have been taught in economics and finance over centuries,” the report continues five pages later. “This inadequate design is often detrimental to consumers and investors.”

“Taxonomy of Digital Assets and Central Bank Money,” Figure 8-1.

The comprehensive report – which includes over 100 pages of appendices – covers all aspects of the US economy, including the rise of women in the workforce, climate change, imported goods, foreign investment and education. But several sections deal with technology and digital markets.

Chapter 7 is entitled “Competition in the Digital Economy: New Technologies, Old Economics.” And Chapter 8 takes crypto head-on, under the heading “Digital Assets: Reearning Economic Principles.”

The conclusion? Crypto advocates need to go back to school, as they are “re-learning the lessons of past financial crises the hard way.”

“In addition to decentralized custody and control of money, it has been argued that cryptoassets can 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,” the authors wrote. “So far, cryptoassets have not provided any of these benefits.”

The cost of crypto, meanwhile, has negatively impacted consumers, the financial system, and even the physical environment.

“Yes, cryptoassets to date do not appear to offer investments of any fundamental value, nor do they act as an effective alternative to fiat money, improve financial inclusion, or make payments more efficient,” the authors wrote. “Instead, their innovation has mainly been about creating artificial scarcity to support crypto asset prices.”

“Many of them have no fundamental value,” they added.

The authors then work their way through a series of “claims” made by crypto supporters, including the belief that crypto-assets can be investment vehicles, can act as money without a central authority, enable fast digital payments and increase financial inclusion and reduce the unbanked and underbanked.

An extensive list of rebuttals follows, focused on potential harm to consumers and lack of regulation and enforcement.

“One of the main areas where there is mass discrepancy is the disclosure of crypto-assets that are securities,” the report says, before returning to a running theme. “This lack of disclosure prevents investors from realizing that most cryptoassets have no fundamental value.”

The council is even taking a step back, taking a stab at explaining Web3.

“Proponents of blockchain technology claim that it will not only improve business performance, but also be the backbone of an entirely new Internet – Web3, the so-called new Internet,” they wrote.

Citing Signal app founder and cryptographer Moxie Marlinspike, the piece concludes that some centralization is inevitable.

“When a distributed ecosystem centralizes around a platform for convenience, it becomes the worst of both worlds,” the report notes. “Centralized control, but still distributed enough to be fixed in time.”