- Biden signed an executive order Wednesday calling on the government to examine the risks and benefits of cryptocurrencies. A rally in crypto prices followed.
- The measure will look into consumer and investor protections, and mitigating illicit activity, among other things.
- "The reaction is overwhelmingly positive," says Kate Rooney, CNBC’s technology reporter.
President Joe Biden signed an executive order Wednesday calling on the government to examine the risks and benefits of cryptocurrencies.
The crypto market got wind of the executive order ahead of Wednesday's announcement after the Treasury Department accidentally put out a since-deleted statement calling it "historic" and releasing some of the details ahead of time.
Here's why cryptocurrencies are rallying and what the executive order may mean for the future of digital assets.
The executive order will look into consumer protection, financial stability, illicit activity, U.S. competitiveness, financial inclusion, and responsible innovation in the crypto space, according to Wednesday's White House press release.
Cryptocurrency is a decentralized asset, meaning there's no single bank or authority that oversees it, unlike the U.S. dollar which is managed by the Federal Reserve. News of potential federal oversight is being welcomed by many leaders in the crypto space.
"The crypto industry has been on the edge of its seat for this executive order, and the reaction has been overwhelmingly positive" says Kate Rooney, CNBC's technology reporter who covers cryptocurrency. "CEOs and industry leaders are interpreting the executive order as a sign that not only does the U.S. not want to ban crypto, it's taking it seriously as an asset class and doesn't want to fall behind the rest of the world when it comes to regulation."
This will help usher in more advancements in cryptocurrency, says Deana Burke, the co-founder of Boys Club, a social club for crypto-curious women and non-binary individuals. "The promise of crypto is more than decentralization, it's about what decentralized technology enables: a system committed to innovation, inclusion, and independence. The community has wanted to see responsible regulation for years, especially consumer protections," Burke says.
A key part of the executive order is consumer protection. Scammers took home a record $14 billion in cryptocurrency in 2021, according to blockchain analytics firm Chainalysis.
Erika Safran, a certified financial planner and the founder of Safran Wealth Advisors in New York, was a victim of a crypto scam. In 2017, Safran owned six whole bitcoins, which at today's price would have been worth more than $250,000. On December 29, 2017, the currency "appreciated to the point where I got all of my money back, so I said, 'You know what, let me take three [bitcoin] off the table,'" Safran says.
The crypto platform Safran was using, USI-TECH, was shut down "literally 24 hours later," for being a scam, Safran recalls. U.S. users immediately stopped receiving bitcoin payouts, meaning she lost her remaining three bitcoin.
That's why federal oversight is so important, Safran says: "Having some kind of regulations would certainly have caught a company like USI-TECH and recognize that it was a scam."
The Biden administration is planning to explore a digital version of the dollar to give the U.S. a competitive edge over other countries.
"I applaud this constructive approach to thoughtful crypto regulation and look forward to working together with the various stakeholders to ensure that the US remains a leader in crypto," Cameron Winkelvoss, a crypto pioneer and the founder of the crypto exchange Gemini, tweeted in response to the news.
This comes as China has led the charge toward central bank digital currencies, or CBDCs, with more and more people using smartphones to make payments and manage their money, despite the fact that China has effectively banned cryptocurrencies.
If you are interested in investing in cryptocurrency, "be prepared for a wild ride," Safran says. Only put in money that you can live without.
Safran still invests in cryptocurrency, but she's prepared for losses and extreme volatility. Unlike stocks and bonds, crypto investments don't have underlying earnings or cash flow streams that dictate their prices. Instead, prices are determined largely by investor perception.
Over the last six months, the price of bitcoin has been as high as $67,000 and as low as $35,000. "I think of it as an asset to hold for the long term and not to count on," Safran says. "If you have a long-term horizon, then maintain your course."
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