President Biden plans to announce an executive order this week that will outline the federal government’s strategy for reviewing cryptocurrencies, according to Bloomberg.
Citing people familiar with the administration’s plans, Bloomberg said the order will direct federal agencies to examine potential regulatory changes and then report back to the White House later this year. The order is also expected to address the possibility of a U.S. Central Bank Digital Currency, or CBDC, and carve out regulatory roles for individual agencies including the State and Commerce Departments, according to Bloomberg.
The executive order, in development since last year, could be issued as early as Wednesday, according to Reuters.
Biden’s order would come amid a debate on whether crypto has been a net positive or negative during Russia’s invasion of Ukraine. Some Democratic legislators including Sens. Elizabeth Warren of Massachusetts, Ron Wyden of Oregon, and Sherrod Brown of Ohio have advocated for more regulation of the crypto sector. Warren and Brown joined two other Democratic colleagues in sending a letter last week to Treasury Secretary Janet Yellen expressing concern about the potential use of cryptocurrency to evade sanctions.
On the business side, leaders of crypto exchanges like Binance and Coinbase have resisted calls by Ukrainian officials and Western politicians to unilaterally ban Russian users of its platforms. Coinbase CEO Brian Armstrong said in a tweet last week that crypto is serving as a “lifeline” for Russian users who are now facing the consequences of a collapsing ruble and increased sanctions.
Although Biden’s executive order is the latest development in the struggle between the crypto sector and regulators, it is hardly the beginning of the battle. Last year, Securities and Exchange Commission Chair Gary Gensler referred to the crypto market as the “Wild West,” and “”rife with fraud, scams and abuse.” Gensler has made clear his intentions to increase regulation in the crypto sector.
Yet, increased regulations will come at a cost to crypto companies, said Amy Lynch a former regulator with the SEC and president of regulatory compliance consulting firm FrontLine Compliance.
Because new regulations will create extra work for crypto companies, they will need to hire more employees, potentially pay for registering their business with the government, and pay lawyers to make sure they comply with the law.
“That will be probably the biggest hit to their bottom line, just staffing up and maintaining a new department, essentially,” Lynch told Fortune.
Increased regulations could also hurt innovation and increase pressure for crypto companies to move overseas where laws are laxer, according to Jorge Pesok, general counsel and chief compliance officer for Tacen, a U.S.-based compliance software developer for the crypto space.
“The cost is significant not only from a monetary perspective, but also from a leadership perspective and the U.S. standing in the world,” Pesok told Fortune. “We cannot give up our leadership role in this industry. It’d be bad for everyone.”
On the other hand, regulations could help consumers by protecting them from con artists and fraud. Last year, scammers netted around $14 billion from crimes involving crypto.
Additionally, by moving proactively, regulators are likely trying to avoid crypto becoming the catalyst for a broad economic crash, like the role bad mortgages played in the 2008 recession said Lynch.
“They don’t want to see another financial crisis, like in 2008, occur because of cryptocurrency and the lack of regulation around it,” she said.
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