White House report casts doubt on cryptocurrencies

The White House’s recently released Economic Report of the President includes a chapter that questions the benefits of cryptocurrencies. This is the first time the White House has included a section on digital assets since it began issuing the annual Economic Policy Report in 1950. The report contains 35 pages dedicated to debunking the “Perceived Appeal of Crypto Assets,” along with a brief section on the FedNow payment system and the central bank’s digital currencies.

The report argues that cryptoassets are failing to deliver on their touted benefits, such as improving payment systems, financial inclusion and creating mechanisms to transfer value and intellectual property. It also argues that cryptocurrencies fail to perform the functions of sovereign money, as their prices fluctuate too much to be a stable store of value, nor can they act as a unit of account or medium of exchange. Stablecoins are also criticized, as they are subject to risk and are therefore too risky to satisfy their role as a “quick payment” instrument.

Crypto executives have expressed frustration with the report, with co-founder of digital asset investment firm Paradigm, Fred Ehrsam, noting that 15% of the financial report was dedicated to “crypto R&D.” Kristin Smith, executive director of the Blockchain Association, called the report “disappointing,” stating that it shows that some in government seem “increasingly allergic” to the burgeoning crypto industry.

The report also takes aim at decentralisation, and argues that blockchain-based applications are in practice neither decentralized nor trustless. Users gain access to cryptoassets by going to a limited set of cryptoasset platforms, while a small group of miners do most of the mining in most cryptoassets, it is claimed.

The latest annual economic policy report was published shortly after the collapses of Silvergate, Silicon Valley and Signature banks, all of which had served aspects of the crypto industry. Dan Reecer, head of growth at decentralized finance platform Acala Network, claims the report comes “just days” after Operation Chokepoint 2.0 was carried out on crypto-friendly banks. He also noted an “obvious early warning” about an upcoming digital currency from the US central bank, citing a section of the report that apparently shows the benefits of a US central bank-controlled currency.

Despite the criticism, it is worth noting that the report is not a policy statement, and it remains to be seen how the Biden administration will approach the regulation of cryptocurrencies and digital assets in the coming months.