On March 9, 2022, the President issued an Executive Order (the “E.O.”) that articulates a high-level, wide-ranging national strategy for regulating and fostering innovation in the burgeoning digital assets space. The strategy is intended to encourage innovation yet still provide adequate oversight to control systemic risks and the attendant investor, business, consumer and environmental concerns.
The E.O. is very broad in scope. It focuses on the myriad of issues associated with “digital assets,” a term defined in a way to capture a wide variety of existing and emerging “crypto” implementations. Specifically, the E.O. defines digital assets to include “all central bank digital currencies (CBDCs), regardless of the technology used, and to other representations of value, financial assets and instruments, or claims that are used to make payments or investments, or to transmit or exchange funds or the equivalent thereof, that are issued or represented in digital form through the use of distributed ledger technology.” Significantly, the E.O. does not make an attempt at defining the regulatory status of digital assets and notes a digital asset “may be, among other things, a security, a commodity, a derivative, or other financial product.”
While the E.O. itself doesn’t really set forth any new requirements, it puts into motion a process that may yield specific regulatory approaches to digital assets. Of course, this process is happening in parallel with other initiatives by the Securities and Exchange Commission (“SEC”) and Congress itself and thus, there is a possibility that the E.O will result in approaches that are in ways inconsistent with other ongoing regulatory developments. For example, in January 2022 the SEC released a proposal that would enhance investor protections and cybersecurity for alternative trading systems that trade Treasuries and other government securities. The proposal prompted a dissenting statement from SEC Commissioner Hester Peirce (often referred to as “Crypto Mom” for her advocacy of the industry), who objected to the speed and breadth of the January 2022 proposal. The E.O. sidesteps some of the controversial issues addressed in the SEC proposal, such as how “exchanges” should be defined, as well as the greater issue of how different digital assets should be classified (and therefore, which financial regulatory agencies have jurisdiction over various digital products and platforms). At the same time, there seems to be some amount of bipartisan interest in Congress to pass its own legislation regulating certain aspects of cryptocurrency and related technologies (e.g., in the stablecoin area), Whether or not that legislation would be consistent with the results of the E.O.-driven processes is also hard to tell.
