This week, the President’s Council of Economic Advisers (CEA) issued its annual report, which contained an entire chapter devoted to digital assets. When it comes to crypto, the report is by turns critical and tepid, as if its prompt for the crypto chapter was to “make the argument that crypto is overrated but perhaps someday could be useful.” While the report is not wholly negative, it generally is dismissive of the crypto ecosystem’s current value propositions, particularly as compared to the federal government’s own financial products and tools.

Financial regulatory policy should not depend on how any administration appraises the instrument to be regulated. With respect to crypto, the CEA report’s contestable claims and internal inconsistencies show why any pre-judgment of the worthiness of a class of technology or financial instrument is unlikely to accurately predict the future or lead to sound policymaking.

The report revealed a bias against crypto at the outset, asserting that the design of crypto assets “frequently reflects an ignorance of basic economic principles.” Crypto is many things, but fundamentally ignorant of basic economic principles is generally not one of them. Whether one likes the asset class it spawned or not, the design of the Ur cryptocurrency, Bitcoin, reflects a sophisticated understanding of game theory. The Bitcoin protocol provided a solution to the quintessential challenge of coordinating action in a distributed system despite potentially untrustworthy actors (i.e., “The Byzantine Generals Problem”). Perhaps unsurprisingly then, economists Bhagwan Chowdhry and Tyler Cowen have suggested that the creators of Bitcoin and Ethereum, Satoshi Nakamoto and Vitalik Buterin, respectively, should win Nobel Prizes in economics. The report’s snark notwithstanding, on some level the CEA acknowledges (if lukewarmly) that a peer-to-peer network allowing parties who do not trust each other to “nonetheless transact securely is a notable achievement of computer science.”

The report often leans into negative rhetoric while stepping on its own arguments when it comes to substance. For example, the report repeatedly tries to make hay of the claim that “most crypto assets have no fundamental value,” unlike say “commodities such as gold and silver.” Is the Biden CEA a hotbed of gold bugs? Unlikely. Indeed, the report itself recognizes that “[i]n fact, sovereign money does not have a fundamental or intrinsic value” either, but nonetheless it satisfies the oft-repeated functions of money (e.g., being a medium of exchange, unit of account, and store of value). So, does the report find that cryptocurrencies fail to satisfy these functions? No, actually. In the CEA’s estimation, cryptocurrencies do “currently serve each of these functions” but just “in limited ways in the United States.”

These limitations, according to the report, show why cryptocurrencies are not “an effective alternative to the U.S. dollar.” Therein lies one of the core thrusts of the CEA’s digital asset chapter, which is that the federal government’s own existing and proposed products and tools, such as the dollar itself, a regulated banking sector, and the anticipated FedNow instant payment system, already are, or likely will be, superior to crypto alternatives. Any government body will struggle to objectively analyze private payment innovations where it views them as competitors. Where regulation flows from such a body’s assessment of the quality of perceived competitors, those rules will be based on a core conflict of interest.

The report’s section on stablecoins is a prime example of how such a biased perspective can paint financial innovations into a no-win corner. The CEA identifies the primary challenge of stablecoins as that, like bank deposits, they “can be subject to run risk,” but unlike bank deposits, stablecoins are not “subject to a comprehensive set of regulatory and supervisory requirements.” This critique is underwhelming for several reasons. For one, as Silicon Valley Bank’s collapse demonstrated, regulation does not immunize banks from runs. In addition, stablecoin reserves can be held at banks, bringing them within the banking regime anyway. (And, in any event, there are alternative ways to address stablecoin reserve risk, as a basic collateral and disclosure framework could do the job more simply.) Yet, inconsistent with its run-risk concern, the CEA report also fears that stablecoins could be too safe, worrying that stablecoins fully backed with safe assets could outcompete bank deposits, potentially limiting credit availability.

The CEA report’s brief discussion of the possible application of securities laws to crypto projects is equally confused. The report contends that whereas “stocks are claims on the future profits of firms and debt is a claim on interest and principal payments,” these characteristics distinguish such securities arrangements from “unbacked crypto assets,” which “are traded without fundamental anchors” and are likely “not claims on cash flow.” In that case, the CEA should place an urgent call to Securities and Exchange Commission Chair Gary Gensler, who has suggested that essentially all crypto projects—“everything other than bitcoin”—involve securities arrangements. The SEC has alleged in enforcement actions that crypto projects have been purveying unregistered securities that offer things like profit distributions to users. Just this week, the crypto exchange Coinbase received a Wells notice indicating a potential SEC enforcement action, reportedly in connection with its listing of digital assets, its staking as a service product, and other lines of business.

The CEA must know this general background because elsewhere the report states, “One of the principal areas where there is mass noncompliance is disclosure surrounding crypto assets that are securities. This lack of disclosure prevents investors from recognizing that most crypto assets have no fundamental value.” There’s a lot to unpack there, but a couple of things jump out. One, the CEA again steps on its own earlier suggestion that crypto assets can be largely distinguished from equity and debt securities. And two, the CEA should raise its own observation that “digital assets require updating at least some regulations” with the SEC, which has thus far refused to formally update its own regulations to suit crypto projects’ specific risk profiles and as a result is not letting crypto companies register their offerings.

The CEA report’s pitfalls help to reveal some of the trouble with allowing an opinion regarding the merit of a new class of technology and financial instruments to influence policy decisions. While the CEA acknowledges some of the innovations brought about by crypto technology, the report’s own contradictions reveal both an incomplete understanding of the ecosystem, as well as an inclination toward a critical view of it. Neither of these provides a basis for sound policy. Inevitably, any government body will have limited information and knowledge, as well as biases, making its appraisal of novel technologies and products suboptimal. Any person—let alone any government actor—is not well-placed to predict the ultimate impact of potentially disruptive innovation. Users should determine what technology and financial products they wish to use based on their own risk appetites. Instead of assessing merit, policymakers should focus on providing much needed regulatory clarity to entrepreneurs and developers and addressing fraud against consumers. Otherwise, American policymakers may find themselves lamenting their premature eschewing of crypto technology.