In 2022, the cryptocurrency market faced a number of challenges, including the collapse of a “stablecoin” and a major cryptocurrency exchange. These events resulted in significant losses for many everyday investors, particularly young people. However, the turmoil in the cryptocurrency market has had minimal impact on the broader financial system so far. The Biden Administration has been working to mitigate the risks associated with cryptocurrencies and ensure that they do not undermine financial stability.
The Administration has developed a framework for the safe and responsible development of digital assets, which identifies clear risks such as companies ignoring financial regulations and basic risk controls, misleading consumers, and poor cybersecurity. Agencies across government are also ramping up enforcement and issuing new guidance to address these risks. For example, banking agencies have issued joint guidance on separating risky digital assets from the banking system.
Congress to take action
In addition, the Administration is working to combat fraud, money laundering, and terrorist financing involving digital assets. They will also unveil priorities for digital assets research and development to protect consumers. However, the Administration recognizes that more needs to be done and is calling on Congress to take action. Congress should expand regulators’ powers to prevent misuses of customers’ assets, strengthen transparency and disclosure requirements, and fund greater law-enforcement capacity building.
However, the Administration also cautions that legislation should not allow mainstream institutions like pension funds to invest heavily in cryptocurrency markets. This is because traditional financial institutions’ limited exposure to cryptocurrencies has prevented turmoil in the market from affecting the broader financial system. Instead, the Administration supports responsible technological innovations that make financial services cheaper, faster, safer, and more accessible. They will continue to develop their digital-assets framework and work with Congress to achieve these goals.
