What happened:

On March 9, 2022, President Biden issued an Executive Order directing a “whole-of-government” strategy to study digital assets, including cryptocurrencies, and related technologies, telegraphing the administration’s intent to develop a holistic legislative, regulatory, and enforcement framework for the industry within the United States.

In summary:

• The Order does not assert new or unexpected authority to regulate the digital assets industry, and in many cases, new legislation will need to be passed by Congress to be effective. The likelihood of any new statutory authority is not certain in the current climate.
• However, it is notable that the Order’s multi-faceted workstreams culminate in an important goal for the United States - namely, fostering healthy innovation around new technology and asset classes to reinforce the United States’ position as a leader in finance and monetary policy, regulatory oversight, and technology for decades to come.
• While opinions vary widely, many observers see digital assets and digital asset technology as a once-in-a-generation opportunity and avenue for positive global change impacting all aspects of the public and private sectors. Yesterday’s Order demonstrates that digital assets and digital asset technology are important enough for the US government to launch a broad process to craft and enforce new “rules of the road” for the digital assets industry, and to further study and better understand its far-reaching impacts. Accordingly, business actors and market participants will benefit from an equally serious and engaged approach.

The much-anticipated Order identifies six key strategic priorities underlying US policy objectives regarding digital assets:

• consumer and investor protection;
• financial stability and systemic risk mitigation;
• illicit finance and national security risks;
• US leadership in the global financial system and economic competitiveness;
• financial inclusion; and
• responsible technological innovation and deployment.

The comprehensive interagency review solicits multiple reports from Cabinet Departments, federal offices and independent agencies, all to be submitted within 3 to 9 months, depending on issue complexity. The reports are to offer specific recommendations, including legislative and regulatory proposals, for the US government's approach to digital assets generally. Among the reports:

• Treasury will study the creation of a US central bank digital currency (CBDC), already under evaluation by the Federal Reserve, and evaluate the potential implications for broader economic growth and stability, while also analyzing the potential for related illicit-finance and national security risks;
• Justice will review whether new legislation will be needed for a US CBDC;
• The Securities and Exchange Commission, the Federal Trade Commission, the Commodity Futures Trading Commission, Treasury, the Consumer Financial Protection Board and federal bank regulators will analyze the risks digital assets may pose to consumers, investors and markets;
• Multiple agencies will study the environmental impact of digital asset technologies, including cryptocurrency mining and related activities; and
• The Attorney General will evaluate role of law enforcement and available measures to mitigate illicit digital asset activities.

Why it is important:

The Order is a bellwether signaling the US government’s acknowledgement of digital assets, including cryptocurrencies, as an enduring industry and impactful market force, and its intent to introduce legislation, regulation and enforcement policies to address industry and systemic risks. Regulatory changes, either in advance of or as the result of legislation, will directly impact the digital assets sector and cryptocurrency markets.

For example:

• Businesses that issue, trade, or hold cryptocurrencies can expect recommendations for additional requirements to verify counterparties, particularly where cryptocurrency transactions occur outside of regulated or quasi-regulated financial firms and exchanges;
• Financial services firms and exchanges can expect recommendations for additional regulatory compliance requirements, including with respect to vetting customers, investors and counterparties, reporting income and capital gains, and monitoring transactions; and
• Market participants can expect that regulatory agencies will seek to drive digital asset creation and trading activity toward licensed and regulated firms under new and existing requirements and rule-making initiatives resulting from the Order.

Undoubtedly, given the expansive interagency framework being launched by the Order, businesses across all industries will be impacted by the resulting US policy positions, as digital assets and cryptocurrencies become increasingly integrated throughout the global economy. The direct implication is that businesses of all types may need to assess prospective impacts and opportunities that may arise in an economy enhanced by digital assets, including from potential implementation of a US CBDC.

What you should do:

The Dentons Blockchain, Digital Assets & Cryptocurrency team will be closely engaged as reports under this Order are developed and issued. The new US strategy launched by the Order warrants all businesses and investors being aware of and anticipating the potential widespread impact of resulting policy, regulation and legislation at the intersection of finance and technology. Please contact a member of the Dentons Blockchain, Digital Assets & Cryptocurrency team, or your regular Dentons lawyer or professional, to better understand what to expect in the forthcoming reports, what kind of legislation and regulation is likely to be recommended, the potential impact of these actions on various industries, and how businesses and investors can participate in its formulation and prepare for forthcoming developments.