What a difference a year makes. It was released by the office of US President Joe Biden on March 9, 2022 Executive Order on Digital Assets, marking the first official indication of a comprehensive approach to regulation of the crypto ecosystem. At the time I and many others saw this as a huge deal, not least because of the strong signal that crypto had “arrived.” Now it was important enough to attract the attention of the leader of the world’s largest economy, and the surprisingly supportive tone of the document certainly meant that a constructive regulatory approach was in the offing. how wrong i was
A year later, the backing vocals have largely disappeared. The comprehensive approach we were hoping for turned out to be more dangerous than we anticipated, and the focus is now on erecting barriers rather than building a guiding framework. What happened in the interim?
Noel Acheson is the former head of research at CoinDesk and Genesis Trading. This article is taken from him crypto is now macro Newsletter, which focuses on the overlap between the shifting crypto and macro landscape. These opinions are hers, and nothing she writes should be construed as investment advice.
Part of that answer is unfortunately obvious. Not only was the fraud-fueled fireball during the collapse of the FTX crypto exchange in November a spectacular embarrassment for crypto businesses that then-CEO Sam Bankman-Fried and his team believed in. It was also an embarrassment to the politicians who sat with him, posed for photo ops and entertained his thoughts about crypto regulation. With a few brave exceptions, politicians have apparently closed ranks and scrambled to distance themselves from anything related to crypto risks.
But this change is more complicated than it seems. Even before the FTX disclosure, the tone of the Biden administration was more adversarial. Absent from the executive order were calls for a clampdown; It was more about requesting investigations and reports, more about gathering information and ideas.
In September, the White House published an update, who mentioned the entanglement of the Terra ecosystem in the first paragraph. Furthermore, the update stressed the loss of value in the market, how sellers “commonly” mislead consumers and that non-compliance with existing laws is still “widespread”. It already seemed very different.
The update also set out some of the White House’s recommendations, the first of which was that the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) “aggressively pursue investigative and enforcement actions against illegal practices in the digital asset space.” We do.”
The crypto fallout presented Washington, DC with a problem it could show the world it was doing something about.
The second recommendation was that the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) “redouble their efforts to monitor consumer complaints and enforce against unfair, deceptive or abusive practices.”
The third was that the agency should “issue guidance and regulations to address current and emergent risks in the digital asset ecosystem.” you get the flow.
The rest of the report emphasizes support for FedNow, the Federal Reserve’s instant payments network due to launch in mid-2023, as a solution to the financial exclusion — in other words, the US doesn’t need crypto payment efficiency, it has the Fed.
And then we have the official document released in January this year titled “Administration’s Roadmap to Mitigate Cryptocurrency Risks, You almost don’t need to read it to know what’s in it — the last sentence of the first paragraph makes it clear: “As an administration, we are focused on ensuring that cryptocurrencies cannot undermine financial stability.” , to protect investors, and to hold bad actors accountable. The tone ranged from supportive to hostile to somewhat nervous.
But it is simplistic to blame the change in US regulatory tone on crypto fraudsters. Another important change in the regulatory background between the executive order and the two updates is the economic mood, and it is more important than many people realize.
Read more: George Kaloudis – The Banking Crisis Isn’t Crypto’s Fault
When the executive order was published, the Federal Reserve had not yet begun its interest rate hike campaign; It will make its debut with the first 25 basis point hike at the Federal Open Market Committee (FOMC) meeting next week. The market knew a rate hike was coming. US headline Consumer Price Index (CPI) data showed that inflation was rising sharply, reaching 7.9% for February (this will be reported the next day) – but that it was being seriously underestimated. How much will it be? The 12-month implied rate, according to the fed funds futures market, was a Now-laughable 2.87%,
At the time of the executive order, dark clouds were already forming for equities. The S&P 500 was around 4270, down 10% year-to-date. By the time of the update in September, it had fallen nearly 10%, and layoffs at the tech company were beginning to make headlines. Obviously, with investors hurting, the government had to get tough on risky, largely unregulated assets, leading to deep losses. In other words, the market needed a “bad guy” who was shaping up to be a bleak scenario across all asset groups.
November delivered the ultimate “bad guy” as the FTX fraud shocked both the crypto ecosystem and mainstream observers. For the time being it was an unwanted distraction from a core inflation rate that hit its highest level in four decades, a dollar that was at its highest level relative to a basket of other currencies in two decades, and a slide in the US Treasury market. -Wasn’t seen since the lows. The Great Financial Crisis of 2008–2009. Things were looking bad on the macroeconomic screen, but the crypto fallout presented Washington, DC with a problem it could show the world it was doing something about.
However, the current hostilities are about much more than the political satisfaction of prosecuting the perpetrators. It is a natural response to widespread concerns. When times are bad we seek comfort, and new, complex and disruptive technologies are never a comfort. When times are bad, we instinctively tend to exaggerate external threats because it makes us feel more connected to our tribe. When times are bad, we focus more on surviving today and less on building a productive tomorrow. When times are bad the leadership manual tells us to act stronger than we feel in order to inspire confidence.
On a more practical level, if the economy is about to enter a recession, the Biden administration would probably prefer that businesses and individuals invest in more traditional, high-employment efforts than in this new notion that seeks to separate national authority. tries to.
I’m not suggesting that the administration’s hostility toward crypto assets is just for show. I think it is not just because of the brutal crackdown on investors in the last 10 months. The reason for this is also the dark clouds over the American economy.
Read more: David Z Morris – Silicon Valley Bank and Signature Bank ‘Moral Hazard’ Dilemma Bitcoin Was Designed to End
There is a silver lining in this. As administrations change, so do economic cycles. The rivalry is far from uniform – Thursday House Financial Services Committee Hearing The provocative title “Coincidence or Coordinated? The Administration’s Assault on the Digital Asset Ecosystem” is a case in point. There was a fair amount of skepticism and outright disbelief among some lawmakers and one of the witnesses. But most witnesses and the many elected officials present saw clear rules and a useful There were eloquent advocates for the framework. All agreed that regulation was good, and most seemed to support the idea of market reform and the need to keep crypto businesses in the US.
Hearings rarely accomplish much in a short amount of time, but they are an opportunity to get political stakes on the ground. The initial outlook of the new House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion is encouraging in its explicitly critical take on current policy and political process. Its chair, Rep. French Hill (R-Ark.), gave a scathing his written statement After articulating the need to support innovation for leadership and competitiveness while ensuring appropriate controls and accountability:
“These are the administration’s own principles as expressed in its executive order, although its recent actions These principles appear to be in conflict.(my emphasis)
In fact they do. The White House could argue that recent industry events have shown that suppression of US crypto activity is in the best interests of Americans. But this lamentable change is much more than protecting investors from being defrauded – it is a reflexive response to macroeconomic threats on the increasingly looming horizon. Because of that, we know it will pass, as all cycles do.
The views and opinions expressed here are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.