The White House is concerned about crypto

The White House published a statement warning about the risks of cryptocurrencies, pointing to last year’s various collapses. I spoke with an administration official about the statement and what it means.

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Last week, the Biden administration published a “roadmap to reduce the risk of cryptocurrencies,” signed by (outgoing) National Economic Council Director Brian Deese, White House Director of Science and Technology Policy Arati Prabhakar, Council of Economic Advisers Chair Cecilia Rouse and National Security Advisor Jake Sullivan.

The statement, on the face of it, isn’t a huge surprise. The cryptocurrency industry actually had a rough 2022. As I wrote in a previous edition of this newsletter, just trying to keep up with the various companies declaring bankruptcy has caused our court database fees to jump dramatically. Still, in a way, the statement suggests a more cautious approach to cryptocurrencies than US President Joe Biden’s executive order on crypto from last March.

The statement opened with a brief summary of “a tough year” for crypto, referencing the collapse of Terra and FTX, but noted that there appeared to be no contagion from the crypto industry to the broader financial ecosystem.

I spoke with a senior administration official about the statement, who told me it was part of Team Biden’s ongoing efforts to close regulatory loopholes in the crypto ecosystem.

“We hope that Congress will take strong action to address the needs in this area, but we continue to push forward on the administrative front and implement much of [executive order] recommendations as well as encouraging regulators … to continue their efforts to increase enforcement and crack down on bad practices in the space,” the official said, calling the approach “double-tracked”.

Last week’s statement pointed to the administration’s previous announcements, such as the digital asset framework, and statements published by federal government departments — including a joint statement by banking regulators, also published last week.

“But the events of the past year underscore that more is needed. Agencies have redoubled their efforts to combat fraud, including the spread of false or misleading claims about cryptoassets insured by the FDIC. And while the United States is already a global leader in the fight against money laundering money and the financing of terrorism, enforcement agencies are using increased resources to combat illegal activities involving digital assets, the statement said.

The statement’s final paragraph began with a comment about supporting responsible innovation—a line we’ve heard before—but ended with a reiteration of the authors’ concern about wanting safeguards in place.

“I think that given the events of last fall, we were very aware of the need to implement many of the safeguards that were called for in the FSOC reports, things like separating clients’ assets, gaining additional visibility into vertically integrated firms, cracking down on conflicts of interest, addressing spot market jurisdiction and it’s a long list, but I think they’re part of how we make sure we protect consumers and support financial stability, the official said.

Next week will be busy. There will be four bankruptcy hearings, a hearing on Sam Bankman-Fried’s bond terms and Celsius Network’s bidding. Here’s what we’re looking at.

If you have thoughts or questions about what I should discuss next week or any other feedback you’d like to share, feel free to email me at [email protected] or find me on Twitter @nikhileshde.

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