On Monday, U.S. president Joe Biden published the administration’s economic report and addressed the subject of cryptocurrencies. The section titled “The Perceived Appeal of Crypto Assets” describes the currencies as “mostly speculative investment vehicles” that are “unbacked” and “traded without fundamental anchors.” The White House insists that crypto assets do not deliver on their promises and do not “perform all the functions of money as effectively as sovereign money, such as the U.S. dollar.”
Crypto Assets and Defi Highlighted in Biden Administration’s Economic Report
The recently published “Economic Report of the President” covers various topics, including the war in Ukraine, Covid-19, infrastructure, and U.S. employment statistics. On page 239, the report delves into bitcoin and other crypto assets, examining claims made by proponents and attempting to refute them. The Biden administration views crypto assets as too volatile when compared to traditional assets. According to the White House, crypto assets are “mostly speculative investment vehicles” and fail to serve as effective units of account.
The report argues that cryptocurrencies do not perform well as a medium of exchange due to their limited acceptance and high volatility, which prevents them from being reliable stores of value. The White House also believes that there is a conflict of interest when crypto assets are seen as both a form of money and an investment vehicle. “In summary, in addition to being speculative assets, cryptocurrencies are currently ineffective alternatives to sovereign money, such as the U.S. dollar,” the report’s authors claim.
The White House points out that crypto assets do not fulfill basic monetary promises and warns that stablecoins can pose a run risk. The report highlights the Terra stablecoin implosion as an example, and the White House emphasizes that stablecoins could potentially “disrupt financial stability.” Therefore, “stablecoins are currently too risky to satisfy this need,” according to the president’s economic report. While the White House acknowledges that distributed ledger technology (DLT) is a significant accomplishment in computer science, it also notes that “there have been limited economic benefits” of DLT.
Biden Administration Insists Defi Platforms ‘Should Be Operating in Compliance With Existing Regulations and Rules’
The authors of the report also criticize Web3, referring to it as the “so-called new Internet” and dismissing the benefits that its proponents claim. The White House authors conclude that crypto assets do not offer investments with any fundamental value and that they cannot serve as an effective alternative to fiat money. Instead, the innovation behind crypto assets is mostly focused on creating artificial scarcity to support their prices. According to the White House, many crypto assets have no fundamental value. The Biden administration is wary of financial innovation and sees inherent risks. The report, for example, emphasizes decentralized finance (defi) and the broad range of defi protocols.
“The basic promise behind defi is to replace financial intermediaries, instead linking savers directly with borrowers (or buyers with sellers), allowing them to save on the spread that traditional intermediaries charge for creating the match with software,” the authors explain. “However, they also create serious risks to investors and cause at least two risks for the broader financial system: the use of significant leverage, and the performance of regulated functions without compliance with appropriate regulations. Defi platforms acting as unregulated banks, broker-dealers, exchanges and other entities subject to regulation should be operating in compliance with existing regulations and rules.”
Overall, the Biden administration is skeptical of the value and potential of crypto assets and defi due to concerns over their volatility, limited acceptance, and regulatory compliance. White House researchers suggest that regulating crypto assets is the best approach to this new technology, whether it lasts or not. Biden’s Council of Economic Advisers criticize the “illicit finance risks,” pointing out that bad actors could leverage digital assets to inflict disruption in financial markets. Since the White House report was published, it has become a topical conversation for crypto proponents on social media and forums.
What do you think about the Biden administration’s economic report and skepticism towards these new technologies? Share your thoughts about this subject in the comments section below.
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