The reports mandated by President Biden’s March executive order are here and seek to offer a comprehensive framework for the responsible development of digital assets (commonly known as cryptocurrencies). As noted early after the release, however, many of the items were left to be determined. But that doesn’t mean that the reports should be ignored. This series of blog posts will tease out some of the subtler points from each of the reports released on Friday.

Recommendations from the U.S. Department of Commerce

The fourth report, “Responsible Advancement of U.S. Competitiveness in Digital Assets,” came from the U.S. Department of Commerce. And as the name suggests, the Commerce Department was tasked with identifying how the United States can remain and further become a global leader in the cryptocurrency and blockchain industries (Section 8(b)(iii) of Executive Order 14067). To that end, the report offered the following four recommendations:

  1. Ensure comprehensive and effective cryptocurrency regulation.
  2. Engage with other countries on policy decisions to promote trade.
  3. Engage with the private sector to promote innovation.
  4. Invest in technological research and development.

When it comes to offering comprehensive regulation, the report’s frequent refrain was the importance of promoting “healthy competition.” However, the report did not grapple enough with the fact that steep compliance costs can undermine that very competition. Barriers to entry can result from both onerous and ambiguous regulations alike. For example, the lack of clear and consistent rules has led to heightened uncertainty in U.S. markets. Moreover, as the report itself noted, but did not investigate in any great detail from the angle of understanding compliance burdens, “Growth of the digital asset industry to date has occurred in regional clusters, with certain nation‐​states perceived as attractive locations from which digital asset businesses can operate in laxer regulatory environments than other locales.”

With that said, there are a couple of fronts on which the Commerce Department deserves praise. For one, the Commerce Department was the first agency of those issuing reports to solicit comments from the public. It was only after the Commerce Department issued a request for comment that the Treasury issued its own request, which appeared to have copied some of its limited questions directly from the Commerce Department.

In addition, the Commerce Department should be credited for its assessment of the dollar’s international status as the world’s reserve currency. As the report noted, “foreign CBDCs… offer little new competition to the dollar… particularly because they do not address structural factors” like payments efficiency, network effects, institutions, and the rule of law. Congress and the executive branch would be wise to recognize that improving payments speeds, financial privacy, and monetary policy transparency are far more important for preserving the dollar’s status than issuing a CBDC.

A Few Other Notes on the Report

The report suggested that risks “related to consumer and investor protections, cyber and data security vulnerabilities, and… illicit activities” are “tangible” but that certain benefits related to increasing consumer choice and fostering competition in payment systems are “hypothetical.” Criminal activity is not something to be dismissed, but this subtle structuring of real risks traded off against theoretical benefits overlooks the very real ways in which cryptocurrencies have shown that the payments system should be improved. Notably, this treatment mirrors the way that the U.S. government has structured risks as theoretical and benefits as real when speaking of central bank digital currencies (CBDCs).

Speaking of subtle distinctions, the report avoided the word “cryptocurrency” in all but minor footnotes and, unlike the Treasury’s report on cryptocurrencies’ implications, it did little to acknowledge cryptocurrencies’ use in transactions as a form of niche money. In fact, the report listed “crypto‐​asset, digital dollar, and NFT” as having become household terms. Those terms are far more common than they were in the past, but (save for NFT) their use pales in comparison to that of the term “cryptocurrency” when measured on Google Trends (Figure 1). What’s more, NFTs can almost only be purchased with cryptocurrencies.

With respect to the use cases for digital assets that the Commerce Department had in mind, the report’s executive summary essentially described cryptocurrencies solely as being used for investments or collateral. It was not until the end of the report that the “promise in facilitating payments” was described. Even then, the promise to improve payments was only described as something advocates “claim” to be possible. But there are now myriad ways for spending cryptocurrencies, even if some can be somewhat niche.

Are you ready to learn about the next report? Click the links below to jump to another report.