While the crypto market is in the midst of a significant rally, one likely fueled by the banking fiasco, the Biden administration recently released its annual Economic Report of the President, and it could prove to be a challenging obstacle for the nascent asset class.
The report covers a multitude of topics ranging from unemployment, supply chain challenges, climate change, and of course, cryptocurrency. To say the report is less than friendly to crypto might be an understatement, but let's take a look at some of the key points.
What the report had to say
The underlying tone of the Biden administration's viewpoint on crypto could be described as scathingly sarcastic. Look not further than the title of the chapter "Digital Assets: Relearning Basic Economic Principles."
The analysis of cryptocurrency is in a format where supposed claims and benefits of cryptocurrency are posed, such as improving payment systems, increasing financial inclusion, or alternative ways for one to hold value. These are then countered with opposing arguments that the promise of cryptocurrencies is hollow and built on the idea of artificial scarcity. In the report's words, "crypto assets have brought none of these benefits" and "many of them have no fundamental value."
In my opinion, the tone and narrative of the report seem to have ulterior motives rather than just protecting investors, as it so eloquently claims.
Instead, it likely signals that the Biden administration is laying the foundation for more targeted regulation of the industry. Based on several high-profile lawsuits already in 2023, this looks as though it could only get worse. Second, it seems this targeting is in preparation for the rollout of the U.S. government's new FedNow, a 24/7 instant payment system to be unveiled in late 2023 and touted as a true solution that could dramatically streamline financial processes in the U.S., or so the report claims. Lastly, vindicating cryptocurrencies is paving the way for the introduction of the government's own central bank digital currency (CBDC), which would essentially turn the U.S. dollar into a digital asset.
So what does this all mean for the average crypto investor?
At first glance, the most concerning aspect could be the looming regulation. It is more than likely that a majority of cryptocurrencies in circulation will be deemed securities and thus subject to increased regulation in the coming years or even months. This could also lead to a dramatic restructuring of the numerous companies whose business models rely upon digital assets.
Suppose legislators decide to take a course of action that is not conducive to fostering growth but rather impedes the development of cryptocurrencies and digital assets. In that case, it could deal a considerable blow to prices.
Why I'm not worried
While this might sound like doom and gloom, there is still hope.
Due to their decentralized characteristics, cryptocurrencies are outside the control of any government or agency. In addition, cryptocurrencies are traded internationally. Let's say the U.S. imposes broad and sweeping regulation of crypto. If this does happen, it might be less than ideal, but the reality is regulations in one country may not have a significant impact on the global market.
But for those looking to prepare for this possible future, it could be advantageous to prioritize investing in some of the most decentralized cryptocurrencies, such as Bitcoin (BTC 1.75%) and Ethereum (ETH 1.28%). Unlike other cryptocurrencies that rely on centralized authorities or have questionable regulatory compliance, Bitcoin and Ethereum are less vulnerable to possible regulation.
While regulation is often portrayed negatively, there is some hope to believe that regulation could actually legitimize digital assets. The thinking goes that more clear regulations can actually benefit the industry by providing certainty for investors and encouraging institutional adoption of digital currencies.
Although the report seems damning, it isn't the first time a country has taken a less-than-favorable approach toward crypto. While the landscape could change significantly in the coming years, prioritization of investments in the most proven and decentralized cryptocurrencies should offer investors the greatest peace of mind and likely the most generous returns.
