In a new report, the White House takes aim at crypto, arguing that numerous aspects of the digital asset ecosystem pose problems for consumers, the financial system, and the environment.
The President’s Economic Report, released on Monday, is a publication issued annually by the Council of Economic Advisers to explain the President’s economic priorities and policies. For example, in the March 2023 issue, an entire chapter was devoted to digital assets and “economic principles.”
White House Economic report blasts crypto – Here is why
The first mention of digital assets in the 2023 Economic Report of the President, released alongside the Council of Economic Advisers’ annual update, states that “blockchain technology has fueled the rise of financially innovative digital assets that have proven to be highly volatile and subject to fraud.”
Although advocates often claim that digital assets, particularly crypto assets, are a revolutionary innovation, the design of these assets frequently reflects an ignorance of basic economic principles that have been learned in economics and finance over centuries. This inadequate design is often detrimental to consumers and investors.
The President’s Economic report
The comprehensive report, which includes more than 100 pages of appendices, addresses all aspects of the U.S. economy, including the rise of women in the labor force, climate change, imported goods, foreign investment, and education. Nevertheless, numerous sections discuss technology and digital markets.
Chapter 7 is titled “Competition in the Digital Economy: New Technologies, Old Economics.” And Chapter 8 takes crypto head-on under the heading “Digital Assets: Relearning Economic Principles.”
What’s the bottom line? First, Crypto advocates should return to school because they are “relearning the lessons from previous financial crises the hard way.” Meanwhile, the costs of crypto have harmed consumers, the financial system, and even the physical environment.
In addition to the decentralized custody and control of money, it has been argued that crypto assets may provide other benefits, such as improving payment systems, increasing financial inclusion, and creating mechanisms for the distribution of intellectual property and financial value that bypass intermediaries. But, so far, crypto assets have brought none of these benefits.
The President’s Economic report
The authors then discuss a number of “claims” made by crypto proponents, such as the belief that crypto assets could be investment vehicles, could function as money without a central authority, enable fast digital payments, and increase financial inclusion and decrease the number of unbanked and underbanked.
The subsequent lengthy list of counterarguments focuses on the potential harm to consumers and the absence of regulation and enforcement.
Regulators shift tone
The report comes amid growing industry concern that federal regulators are planning to de-bank crypto companies, despite the fact that state and federal regulators have denied these claims. Nonetheless, the report’s tone is unlikely to alleviate these concerns.
The criticisms in the report to Congress may indicate a shift from an agnostic to an openly antagonistic stance toward digital assets.
The White House suggests that the Fed’s soon-to-be-launched faster payments network may eliminate much of the argument for digital assets, stating that continued investments in the nation’s financial infrastructure have the potential to offer substantial benefits to consumers and businesses.
The report casts doubt on but does not rule out, the possibility of a digital currency issued by the U.S. central bank, stating that CBDCs could hinder credit availability and increase the risk of bank runs.
Crypto FUD – the crypto community goes after the Economic Report
Crypto executives have expressed dissatisfaction with the latest White House economic report, which includes an entire chapter dedicated to questioning the value of digital assets. Fred Ehrsam, the co-founder of digital asset investment firm Paradigm, noted that 15% of the Economic Report was devoted to “crypto FUD.”
According to Dan Reecer, chief growth officer of the decentralized finance platform Acala Network, the report was published “just days” after Operation Chokepoint 2.0 was carried out against crypto-friendly banks.
In reference to a section of the report that appears to extol the virtues of a U.S. central bank-controlled currency, he noted an “obvious early warning” of an impending United States CBDC or digital dollar.
The White House appears to be skeptical of distributed ledger technology in general, citing arguments that existing technology could perform similar functions better and pointing out flaws in a number of specific use cases.
It also highlights the frequent noncompliance with securities and other financial regulatory laws, the large number of scams, and the unusual concentration of activities by crypto trading platforms that would be prohibited on an existing exchange.
The White House also criticizes proof-of-work mining, claiming that it “has few, if any, attendant benefits” for the communities where miners set up shop while raising local energy costs and increasing the risk of power outages.
