The Biden Administration issued its anticipated executive order seeking to coordinate efforts among federal agencies to craft a national policy for digital assets.
While some pundits are worried about the impact of regulation, we assert that this effort brings digital assets, including cryptocurrency, into the mainstream, which should be a positive for financial institutions looking to operate in the space.
The order, signed on March 9, aims to "ensure that safeguards are in place and [to] promote the responsible development of digital assets." Deliverables are set to arrive in 90 to 210 days.
The Treasury Department will develop recommendations to address consumer and investor protections and produce a report on the money and payment systems. The Financial Stability Oversight Council was tasked with identifying systemic risks tied to crypto and making recommendations to address any regulatory gaps.
The Federal Reserve, which released a payments report in January, was encouraged to examine the potential creation of a US central bank digital currency (CBDC), including its implications for financial inclusion.
We see the order as a constructive effort to build a framework as the US plays catch-up to other countries. It is a streamlined approach that strikes a delicate balance between backing innovation and protecting consumers and businesses.
The order looks to flesh out how to limit illegal uses of crypto, but data suggest that cash transactions are more likely than crypto to be illicit. Hopefully, the review will support that premise.
The review tied to financial inclusion is particularly intriguing. Our recent report on Cryptocurrency in 2022 noted that ownership of crypto assets is particularly high among underrepresented demographic groups. A Morning Consult study found that 37% of Americans holding crypto are considered underbanked. Younger age brackets and non-white groups, both considerable growth opportunities, are significantly engaged.
The Bottom Line
One thing is certain: Implicit in the directive is an assertion that cryptocurrency will remain a part of the US economy for years to come. There is a window of opportunity for banks and credit unions that do their homework (look at deposit outflows and thoroughly vet third-party providers) and are able to formulate an effective strategy to meet the needs of customers and members keen on holding crypto.
