President Biden’s executive order on cryptocurrency is finally here. Despite the anxiety that has been brewing since talks about the order first emerged in January, it is ultimately seeking answers, not action. And luckily for the President, the Cato Institute has many of the answers he seeks.

Let’s consider a few of the questions from the order.

1. What type of regulations are needed to establish consumer protection and financial stability?

There’s been no shortage of discussions in the space regarding how cryptocurrency regulation might take shape. In fact, Jennifer Schulp even hosted a four-part event series dedicated to digging deeper into the discussion (Parts 1, 2, 3, and 4).

As the Biden administration digs into this question, however, it is critically important that the discussion is built on a sound foundation. Senator Tommy Tuberville (R‑AL) made this point well at a senate hearing last week when he asked witnesses what market failures need to be addressed in the cryptocurrency market. Before any new regulatory regime is launched, it’s critical that this question be addressed.

For specific examples of how to best regulate, see:

2. Should the Federal Reserve issue a central bank digital currency, or CBDC? And what are the merits of a CBDC?

Another big debate in the realm of digital currencies has been whether the Federal Reserve (Fed) should issue a central bank digital currency (CBDC). The answer, quite simply, is no. As the recent events in Canada made clear, a CBDC would risk creating a direct line that might be weaponized by the government to control the public.

As for what merits a CBDC might offer, one need only look at the Fed’s own discussion paper. After years of flirting with the idea of a CBDC and a year spent on writing the discussion paper, the Fed was only able to come up with four potential benefits of a CBDC. Considering each of these potential benefits are already being delivered through other endeavors, the Fed has not made a case for issuing a CBDC. As Cato scholars have argued, the United States would be better off renouncing plans to launch a CBDC.

For more on why the Fed should not issue a CBDC, see:

3. What is the environmental impact of cryptocurrency use?

The environmental cost of cryptocurrencies has been another headline topic. It’s an issue that has come up at nearly every congressional hearing on cryptocurrency and it was even the sole focus of a hearing hosted by the Senate Committee on Energy and Commerce in January so it’s little surprise to see it here.

Like with addressing regulation at large, it’s important that the Biden administration approaches this question with a sound foundation in mind. Most importantly, that means recognizing not just the environmental costs of cryptocurrency, but also the benefits to society at large. It’s only with both the costs and benefits in hand that a sound decision may be made.

For more on the costs and benefits, see:

4. What international policy must be set for cryptocurrency to establish global coordination against criminal activity?

The question of international collaboration on cryptocurrency policy could not have come at a more relevant time. Many policymakers in the United States have been using Russia’s attack on Ukraine to call for stricter rules on cryptocurrencies. Yet cryptocurrencies are not the “get out of jail free” card that politicians are making them out to be.

In fact, cryptocurrencies flip the conventional use of financial data inside out. Unlike with traditional banks where an international policy has been set to coordinate information across jurisdictions in what might take days or weeks, anyone is able at any time to check the blockchains to see where cryptocurrency is moving. This fact was put on clear display when the Department of Justice, by using fairly simply blockchain analytics, was able to recover 63.7 bitcoins after the Colonial Pipeline hack last year.

For more on how cryptocurrency does not help criminals, see:

5. How can we promote U.S. leadership in technology and economic competitiveness?

The executive order also asked how to drive U.S. competitiveness and leadership in cryptocurrencies. One way to achieve that goal would be to stop the “midnight rulemakings” that have targeted cryptocurrencies. Last-minute regulation, regulation by enforcement, as well as legislation like that in the Infrastructure Investment and Jobs Act, undermines the long-term ability of the industry to thrive in the United States. And as the events in China made evident, this is an industry that has the power to vote with its feet. Even if the rules are ultimately “harmless,” this practice sends the wrong message.

For more on the best ways to promote competitiveness, see:

Parting Thoughts

Now that the executive order is finally out, hopefully the public can breathe a sigh of relief knowing that it really is seeking answers, not action. Still, it is disappointing that the administration is ignoring all the good ideas that already exist to help promote innovation and competition in these markets.