President Joe Biden announced earlier today that he'll sign a much anticipated executive order "on ensuring responsible development of digital assets." Investors met the news with enthusiasm and sent the crypto market rising pretty much across the board. The price of Bitcoin briefly shot up before falling around 5% over the last 24 hours.
The order covers a wide number of issues across the cryptocurrency landscape, including the protection of people and businesses interacting with cryptocurrencies to maintaining financial stability to "responsible innovation" and opening access to the financial system. Here's what investors need to know.
What's in the order
The order addresses seven key topics. Two of them relate to the protection of consumers, investors, and businesses currently interacting, using, or investing in digital assets. The other aspect of protection relates to ensuring that digital assets don't create global systemic risk or financial instability.
The executive order also asks all relevant U.S. agencies to work together and with international partners to prevent the use of digital assets for illegal activities. This is a constant issue with the decentralized nature of blockchain networks and difficulty in tracing transactions.
Biden's order also tasks various agencies to "drive U.S. competitiveness and leadership in, and leveraging of digital asset technologies." The report recognizes the benefits of digital assets in terms of opening up access to the financial system and even tasks the Secretary of the Treasury, along with other agencies, to do a comprehensive report on the future of money and payments.
Finally, the executive order asks the government to explore how digital assets can be further developed responsibly, with a priority on things like privacy and security. It also asks the Federal Reserve to look into a U.S. Central Bank Digital Currency (CBDC), which would essentially be a stablecoin that's regulated. Stablecoins are digital assets pegged to a currency or commodity.
Image source: Getty Images.
The market took the news in stride
With cryptocurrencies and other digital assets becoming more and more mainstream, more clarity on crypto regulation would likely be positive for the industry. Furthermore, the market may have also been anticipating a harsher tone from the White House, so the several points discussing responsible innovation, a U.S. CBDC, and talk of driving competitiveness left the market feeling bullish.
"Clarity spurs adoption, and adoption leads to growth," Leah Wald, CEO of Valkyrie Funds, which sells exchange-traded funds heavily concentrated in crypto assets, told The Wall Street Journal.
The news could lead to further adoption of cryptocurrencies on Wall Street and also signal a more lenient tone toward crypto-related financial instruments. More regulation and openness to innovation could also benefit many stocks in the space.
For instance, the crypto bank Silvergate Capital (SI 27.89%) is currently developing its own U.S. dollar stablecoin for commerce and remittance. CEO Alan Lane said on the company's most recent earnings call that while a U.S. CBDC would be competition to the bank's stablecoin, he thinks the Fed could very well use the banking system to issue the coins. Silvergate is currently developing stablecoin infrastructure and would be an ideal partner. The stock jumped nearly 19% yesterday.
The company Bakkt (BKKT 8.03%), which has created a digital asset marketplace and platform, has said in regulatory filings that it believes it has the capabilities to help create and run various CBDCs, whether from the U.S. or other governments. Bakkt saw its stock rise more than 20% during the same period.
The right tone
Biden's executive order certainly seems like a win for the crypto industry. Regulation can be seen negatively, but it also creates clarity and a framework for what can and can't be done. I think investors also liked the positive tone in the order regarding innovation and competitiveness.
All of this could lead to less uncertainty and more stakeholders willing to participate in the crypto ecosystem and use digital assets for much more than just speculative investments.
