On Monday, US President Joe Biden released the administration’s economic report and addressed the issue of cryptocurrencies. The section titled “The Perceived Attractiveness of Crypto Assets” describes the coins as “mostly speculative investment vehicles” that are “unsupported” and “trade without fundamental anchors.” The White House insists that crypto assets do not deliver on their promises and do not “perform all the functions of money as effectively as sovereign money, such as the US dollar.”
Crypto Assets and Defi Featured in Biden Administration Economic Report
The recently published “Economic Report of the President” covers various topics, including the war in Ukraine, Covid-19, infrastructure, and US employment statistics. On page 239, the report delves into bitcoin and other crypto assets, examining the claims made by proponents and attempting to refute them. The Biden administration views crypto assets as too volatile compared to traditional assets. According to the White House, crypto assets are “primarily speculative investment vehicles” and do not serve as effective units of account.
The report argues that cryptocurrencies do not perform well as a medium of exchange due to their limited acceptance and high volatility, which prevent them from being reliable stores of value. The White House also believes that there is a conflict of interest when crypto assets are considered both a form of money and an investment vehicle. “In short, in addition to being speculative assets, cryptocurrencies are currently ineffective alternatives to sovereign money, such as the US dollar,” the report authors state.
The White House notes that crypto assets fail to deliver on basic monetary promises and warns that stablecoins may pose a flight risk. The report highlights the implosion of the Terra stablecoin as an example, with the White House emphasizing that stablecoins could potentially “disrupt financial stability.” Therefore, “stablecoins are currently too risky to meet this need,” according to the president’s economic report. While the White House acknowledges that distributed ledger technology (DLT) is a significant achievement in computing, it also notes that “there have been limited economic benefits” from DLT.
Biden administration insists that Defi platforms ‘should operate in accordance with existing norms and rules’
The report’s authors are also critical of Web3, referring to it as the “supposed new Internet” and dismissing the benefits claimed by its proponents. The White House authors conclude that crypto assets do not offer investments with any fundamental value and cannot serve as an effective alternative to fiat money. Instead, the innovation behind crypto assets is largely focused on creating artificial scarcity to support their prices. According to the White House, many crypto assets have no fundamental value. The Biden administration is wary of financial innovation and sees inherent risks. The report, for example, emphasizes decentralized finance (defi) and the wide range of defi protocols.
“The basic promise behind defi is to replace financial intermediaries, linking savers directly to borrowers (or buyers to sellers), allowing them to save on the margin that traditional intermediaries charge for creating the software combination” the authors explain. “However, they also create serious risks for investors and cause at least two risks for the financial system in general: the use of significant leverage and the performance of regulated functions without complying with appropriate regulations. Defi platforms acting as unregulated banks, broker-dealers, exchanges, and other regulated entities must operate in accordance with existing rules and regulations.”
Overall, the Biden administration is skeptical of the value and potential of crypto assets and defi due to concerns about their volatility, limited acceptance, and regulatory compliance. White House researchers suggest that regulating crypto assets is the best approach for this new technology, whether it lasts or not. Biden’s Council of Economic Advisers criticizes “illicit financial risks,” noting that bad actors could leverage digital assets to cause disruption in financial markets. Since the White House report was released, it has become a topic of conversation for cryptocurrency advocates on social media and forums.
What do you think of the Biden administration’s economic report and the skepticism towards these new technologies? Share your thoughts on this topic in the comments section below.
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