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How will the new Executive Order affect the regulatory landscape for cryptoassets?

What are the immediate impacts of President Biden’s Executive Order on Ensuring Responsible Development of Digital Assets on the regulation of cryptocurrencies?

On March 9, 2022, President Biden clearly outlined his goals for regulation and policy direction in relation to digital assets and associated technology.

The White House described it as the ‘first ever, whole-of-government approach’ to addressing the risks raised by the increase in digital assets, including cryptocurrencies. The Executive Order is aimed at harnessing the potential benefits of digital assets and their underlying technology while simultaneously protecting consumers, investors and financial stability. Here are my key takeaways:

The Executive Order changes the focus on cryptoassets and regulation

The Executive Order underscored that cryptoassets have great transformative potential and are an area of heightened focus for the Biden administration but did not establish concrete policy changes. However, it commissioned multiple studies and reports by various regulatory agencies regarding cryptoassets’ promise and potential risks, which could ultimately result in policies being enacted.

The Executive Order underscored that cryptoassets have great transformative potential and are an area of heightened focus

Industry has responded

The industry reaction can best be described as enthusiastic relief. Enthusiastic, because the Order had an unmistakably optimistic and positive tone and was even-handed in its treatment of cryptoassets. And relief, because not much was known about what position the Order would take on cryptoassets, so the Order’s sunny perspective and lack of punitive pronouncements were a welcome surprise.

So, does the Executive Order have implications for the regulatory regime that currently governs cryptoassets?

Unquestionably yes, but not immediately; the Order made no substantive change to the legal provisions governing cryptoassets, which remain the same as they were prior to its release. But by establishing six policy objectives for the administration’s eventual response, the Order provided guidance on where those policies would ultimately land. Those objectives were (i) protecting US consumers, investors, and businesses; (ii) protecting US and global financial stability and mitigating economywide financial risks; (iii) mitigating money laundering, other illicit finance activity and national security risks; (iv) reinforcing US leadership in the global financial system, and technological and economic competitiveness; (v) promoting equitable access to safe and affordable financial services; and (vi) supporting technological advances that promote responsible development and use of digital assets.

How will this area evolve?

Contrary to the hopes of many in the crypto industry, I do not currently foresee a largescale overhaul of the US securities laws regarding their treatment of cryptoassets. This is based largely on the current SEC commissioners’ views that the securities laws apply broadly, and there should not be specific laws for specific types of securities. This could change if there is a meaningful shift in the composition and/or perspectives of SEC leadership, or a move is forced by external factors like congressional action or court decisions (e.g., the SEC v. Ripple Labs case).

I do not currently foresee a largescale overhaul of the US securities laws regarding their treatment of cryptoassets.

CONCLUSION

The Executive Order was a net positive development for the cryptoasset industry. While it enacted no new policies, the reports produced by regulatory agencies pursuant to the Order will inform the path taken in any future policymaking. And the Order’s optimistic tone set a hopeful, positive backdrop for any such exercise.

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MEET THE AUTHOR

ASHLEY EBERSOLE

Partner, Washington

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This document provides a general summary and is for information/educational purposes only. It is not intended to be comprehensive, nor does it constitute legal advice. Specific legal advice should always be sought before taking or refraining from taking any action.

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