Though broad in scope, the EO is largely an initial directive for federal agencies to coordinate their efforts and further study the various emerging issues around digital assets. Stopping short of implementing any new federal regulations or even a blueprint for them, the EO signals the Administration’s understanding of the significance and permanency of digital assets in the U.S. and global economies. The EO might be interpreted by some in the industry as a signal that the federal government, including, in particular, the U.S. Securities and Exchange Commission (SEC), has finally arrived at the inevitable conclusion that digital assets are a permanent fixture of the financial system. That said, some form of increased regulation and oversight appear to be on the horizon, even if the EO fails to provide the bright lines that many in the industry have been hoping for.
While the EO will continue to be parsed through in the coming days and weeks for clues as to where the Administration, including the SEC, and other regulators in the space, such as the Commodity Futures Trading Commission, Federal Trade Commission, and Treasury Department, might focus their attention and resources, below are a few takeaways that those in or adjacent to the digital asset and cryptocurrency industries should note from yesterday’s EO.
- There will be a major emphasis on consumer protection: The EO makes clear that the Administration is concerned about the rapid proliferation of digital assets, and cryptocurrencies in particular. Indeed, the first paragraph of the EO notes that as many as 16 percent of adult Americans have invested in, traded, or used cryptocurrencies. As adoption of digital assets steadily increases, the Administration sees a corresponding uptick in the risk of fraud, theft, cyber and data breaches, and other financial crimes that could harm retail consumers, investors, and businesses. We expect federal agencies with particular consumer protection responsibilities to see this EO as a directive to step up investigations and enforcement actions to crack down on such bad behavior.