On Wednesday, March 9, 2022, President Joe Biden signed a long-awaited Executive Order to establish “policy objectives of the United States with respect to digital assets,” aka crypto assets. Upon first read, the most striking feature of the Executive Order (“Order”) – excluding the number of federal agencies (at least 21) and regulators (at least 8) involved – is the timeline it has set for a series of reports from various federal agencies and regulators. Apart from matters pertaining to national security, the deadline for all key reports under the Order, including a critical interagency report on “the future of money and payment systems,” are between 180 and 210 days. Given this timeframe, this Executive Order sets in motion a policy development process and timetable that is specifically geared to garner steam and momentum throughout the Fall of 2022 (coinciding with the mid-term election), and fully ripen in the early months of 2023.
As the Administration knows all too well, such a timetable all but ensures that the White House will not propose any relevant legislative recommendations in time them to be disposed of by the current, Democratic, 117th Congress. Instead, it suggests U.S. policies on digital assets – and potentially, other financial innovations – will be hammered out in 2023-2024, by President Biden and a yet-to-be elected, but likely Republican controlled, 118th Congress.
Congressional Progressives Poised to be Marginalized
The Biden Administration’s de-facto first push to rationalize oversight of digital assets in the United States began to unravel almost immediately after it began in earnest, following publication of the President’s Working Group on Financial Markets Report and Recommendations on Stablecoins late last year. While the PWGFM report received significant attention from both Democrats and Republicans in Congress, it also sparked notable division among regulators and stakeholders, earning the title of a “bridge-to-nowhere.”
Enter yesterday’s Executive Order.
On one level, the Order signed by the President yesterday should be viewed as a bonafide attempt to bring about a “whole of government” approach to address digital assets – one that would be the first of its kind. On another level, the timing and structure of the Order seem particularly calibrated to circumvent the influence of key progressive leaders in Congress, especially those who view digital assets with skepticism. This includes Senate Banking Committee Chair Sen. Sherrod Brown (D-OH), House Financial Services Committee Chairwoman Rep. Maxine Waters (D-CA), and even some outspoken crypto critics like House Capital Markets Subcommittee Chairman Brad Sherman (D-CA) and House Fintech Task Force Chairman Rep. Stephen Lynch (D-MA).
Indeed, much of the interagency work mandated by the Order will commence in short order, ostensibly under the watch of a Democratic Congress. However, in the last analysis, the operational timeline established by the Order dramatically greatly increases the likelihood that any actual legislation that makes its way to the President’s desk related to digital assets will have been penned by Congressional Republicans, and passed with their votes, and those of their centrist, or “Blue Dog” Democratic colleagues.
By the same token, the Order seems to represent a victory for once small but now rapidly growing cadre of Republicans that aim position themselves at the vanguard of cryptocurrency policy, including the likes of HFSC Ranking Republican Member Rep Patrick McHenry (R-NC), early-adopter Rep. Warren Davidson (R-OH), and Sen. Cynthia Lummis (R-WY), who just recently announced she will introduce legislation with the intent to “integrate cryptocurrencies into financial systems” while monitoring “from her perch on the Senate Banking Committee this week.”
Boon to Treasury, Fed; Less Clear for Market Regulators
Federal regulators have been struggling for years to get a grip on the rapidly evolving marketplace for digital assets. With the Office of the Comptroller of the Currency (OCC), the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), all attempting to direct how different aspects of the crypto industry should comply with federal law, a central and singular decision-maker was lost in translation, leaving federal regulators and crypto investors alike in a state of limbo. The major players in the Order, appropriately, are the Treasury and other federal executive branch agencies, such as the Departments of Justice and Homeland Security – which report directly to the President.
Among the independent financial regulatory agencies, the Federal Reserve receives the lion’s share of the attention and commentary.
The Order acknowledges that various other independent federal financial, consumer protection, and market regulators, such as the SEC, CFTC, and CFPB, all have critical roles to play in terms of regulation and influence. However, the undertone seems to indicate that such a role could be less central and not as prominent as they would have liked. Indeed, ways that Congress and the President might go about bringing clarity to the treatment of digital assets under the federal securities and commodities laws would be to explicitly “carve out” digital assets from those laws, effectively assigning responsibility for consumer or investor protection elsewhere.
Triangulation & the JOBS Act of 2012
If what the Order says is true, then so too is what it reveals: President Biden is prepared to work with a Republican Congress on cryptocurrency policy, and he is assembling the information he will need to do exactly that. For a sense of what such a collaboration might look like, broadly, readers are encouraged to take a careful look at the development and passage of the JOBS Act of 2012. Several of the key players from that drama now again stand ready to reprise their roles, should the House or Senate flip in November of this year.
As Mark Twain famously said, “history doesn’t repeat itself, but it often rhymes.”