Article
White House framework on digital assets points to importance of continuous monitoring by companies, investors
Oct. 14, 2022
Cryptocurrencies, a digital asset, have been free from financial regulation for some time. As the use of cryptocurrency increases, new risks emerge for consumers, investors, and organizations.
The ecosystem of digital assets – cryptocurrencies, blockchain, nonfungible tokens (NFTs), decentralized finance (DeFi), decentralized autonomous organizations (DAOs), and more – is young and volatile. In November 2021, non‑state issued digital assets reached a combined market capitalization of $3 trillion, up from approximately $14 billion in early November 2016. However, the value of one type of digital asset – cryptocurrencies – dropped significantly between November 2021 and September 2022. According to the FBI, reported monetary losses from digital asset scams were nearly 600% higher in 2021 than the year before.
More recently, in May 2022, the collapse of TerraUSD, one of the most popular U.S. dollar-pegged stablecoin projects, cost investors tens of billions of dollars as they pulled out in a panic that some compared to a bank run. Widespread buy-in bolstered by supportive reporting from respected financial institutions lent credibility to Terra, further driving the narrative that stablecoins were a legitimate and safe investing vehicle.
New framework
To address the impact of the risks on consumers, investors, and businesses, the White House on September 16 issued a framework for responsible development of digital assets. The framework builds on the Executive Order issued by President Biden in March 2022. To date, nine federal agencies have issued reports focusing on the following areas:
- protecting consumers, investors, and businesses
- promoting access to safe, affordable financial services
- fostering financial stability
- advancing responsible innovation
- reinforcing global financial leadership and competitiveness
- fighting illicit finance
- exploring a U.S. Central Bank Digital Currency (CBDC)
The framework points to the direction federal agencies will take to issue future regulations or guidance to establish stability in the digital assets space and help make them safe and affordable financial options.
The White House framework attempts to both promote innovation in the digital assets space as well as mitigate the downside risks. Financial institutions and investors need to be aware of and prepare for the benefits of digital assets innovation while protecting themselves from potential risk. Over the next several months, Baker Tilly will provide specific guidance and tips as we monitor the next steps taken by the federal agencies who have contributed to the framework. Some of the things our practitioners are paying close attention to include:
