Bitcoin's "Biden Bounce" in the Aftermath of Crypto Executive Order

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The price of Bitcoin soared above $42,000 yesterday after President Biden confirmed he would sign an executive order to ensure the “responsible development” of cryptocurrencies and other digital assets. (Today --- March 10th --  Bitcoin is hovering around $39,000) 

Most major cryptos surged after The White House outlined “the first whole-of-government strategy to protect consumers, financial stability, national security, and address climate risks” - although they dipped again overnight. 

US Treasury Secretary Janet Yellen welcomed the executive order as “historic” in a statement that was accidentally released early, causing a further spike in the market. 

President Biden’s Executive Order sets out national policy for digital assets across six “key priorities” and also “encourages” the Federal Reserve to explore the creation of a Central Bank Digital Currency (CBDC) - a state-backed cryptocurrency. 

The first area of focus is consumer and investment protection, with the Order calling on the Department of the Treasury to develop policy to “address the implications of the growing digital asset sector and changes in the financial market” as well as encouraging regulators to “ensure sufficient oversight and safeguard against any systemic financial risks posed by digital assets”.

The Order also calls upon the Financial Stability Oversight Council to identify systemic financial and national security risks created by crypto, which make up the second and third priorities. 

It requires the Department of Commerce to develop a framework that will ensure US leadership in the crypto space, as well as mandating the promotion of equitable access to “safe, affordable, and accessible financial services”. The sixth priority demands the “responsible development, design, and implementation of digital asset systems while prioritizing privacy, security, combating illicit exploitation, and reducing negative climate impacts”. 

“The rise in digital assets creates an opportunity to reinforce American leadership in the global financial system and at the technological frontier, but also has substantial implications for consumer protection, financial stability, national security, and climate risk,” The White House wrote.

“The United States must maintain technological leadership in this rapidly growing space, supporting innovation while mitigating the risks for consumers, businesses, the broader financial system, and the climate. And, it must play a leading role in international engagement and the global governance of digital assets consistent with democratic values and U.S. global competitiveness.”

There have been rumors of behind-the-scenes disagreements between the Biden administration and U.S. Secretary of the Treasury Janet L. Yellen, delaying the announcement of the Executive Order. 

However, Yellen issued a positive (and rather long) statement supporting the plans. 

She wrote: “President Biden’s historic executive order calls for a coordinated and comprehensive approach to digital asset policy.  This approach will support responsible innovation that could result in substantial benefits for the nation, consumers, and businesses.  It will also address risks related to illicit finance, protecting consumers and investors, and preventing threats to the financial system and broader economy.”

She said the Order will “complement” ongoing work to study stablecoins and other digital assets. 

Yellen continued: “As we take on this important work, we’ll be guided by consumer and investor protection groups, market participants, and other leading experts.  Treasury will work to promote a fairer, more inclusive, and more efficient financial system, while building on our ongoing work to counter illicit finance, and prevent risks to financial stability and national security."

The Executive Order has been hailed as “constructive” and surprised some industry insiders who expected it to be much harsher. 

Mikkel Morch, executive director at the crypto and digital asset hedge fund ARK36, said: “The leaked comments by Secretary Janet Yellen show that the Biden administration will set a friendly and constructive tone for the upcoming federal regulation of crypto. This development defies previous market consensus where investors thought the executive order may be much more hostile. The fact that the price of Bitcoin virtually smashed the psychological barrier of $40K shows that investors feel this is a very promising development. 

Cleve Mesidor, executive director of the Blockchain Foundation and public policy advisor at the Blockchain Association, described the order as “a step in the right direction”.

“Data shows working and middle-class Americans that have been locked out of the traditional financial system are leading mainstream adoption of blockchain and cryptocurrency,” she continued. “So we need this government strategy to prioritize greater federal investments in skills training and access to capital to ensure new female investors, Black and Latino entrepreneurs, startup founders, and small businesses in urban and rural communities are empowered to lead and thrive.”

The US crypto policy is now broadly in line with other countries in the West. The EU has announced plans to issue its own CBDC order in March, followed by a digital euro expected to launch within the next few years - with some observers predicting it could arrive as soon as 2025. 

In the UK, the Bank of England is also working on a CBDC pilot scheme and a digital pound. Both the EU and Britain are global leaders in financial technology, pioneering Open Banking and Finance in which banks and consumers voluntarily share their data with third parties to create innovative new financial products. 

China has banned cryptocurrency but has also built its own CBDC which has now been used in billions of dollars worth of transactions. A CBDC is very useful for a totalitarian government because it allows the sort of control and monitoring of individuals that is impossible with cash and relatively difficult with other cryptocurrencies. 

Russia’s Central Bank has called for a ban on crypto but this has not resulted in concrete policy. Moscow is also working on a CBDC and its investors, from billionaire oligarchs to ordinary Russians, are expected to use crypto to dodge sanctions imposed in the wake of its invasion of Ukraine. 

It is not yet clear which nation will lead the crypto space - or whether it is even possible for a single country to dominate this heterogeneous and decentralized sector. The crypto space race has begun and it will change the world forever. 

Until now, the power has been with the people. With the development of regulations and CBDCs, it now seems inevitable that governments will once again take charge. 

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