Crypto executives are expressing irritation over the latest White House economic report, which features an entire chapter dedicated to casting doubts on the merit of digital assets. Released on March 20, the Economic Report of the President marks the first time that the White House has included a section on digital assets since it began issuing the annual economic policy report in 1950. The report includes 35 pages dedicated to debunking the “Perceived Appeal of Crypto Assets”, along with a short section on the FedNow payment system and central bank digital currencies.
The report’s main argument is that crypto assets fail to deliver on their touted benefits, such as improving payment systems, financial inclusion, and creating mechanisms to transfer value and intellectual property. Instead, their innovation has been mostly about creating artificial scarcity to support prices, and many of them have no fundamental value. It also argues that cryptocurrencies fail to perform the functions of sovereign money as crypto prices fluctuate too wildly to be a stable store of value, nor can they function as a unit of account or medium of exchange.
The report also takes aim at stablecoins, arguing that they are subject to run risks and thus too risky to satisfy their role as a “fast payment” instrument. Kristin Smith, the Blockchain Association CEO, called the latest presidential report disappointing, saying it shows that some in the government appear increasingly allergic to the burgeoning crypto industry. She added that she hoped the Biden administration would consider how it would be remembered: as a leader of profound innovation or a roadblock to a global tech revolution.
Decentralization is also highlighted in the report, which argues that despite claims of being decentralized and trustless, blockchain-based applications are in practice neither. Users access crypto assets by going to a limited set of crypto asset platforms, while a small group of miners performs the majority of mining in most crypto assets.
The latest annual economic policy report was published some two weeks after the collapses of Silvergate, Silicon Valley, and Signature banks, all of which had served aspects of the crypto industry. Dan Reecer, chief growth officer at decentralized finance platform Acala Network, claims that the report comes just days after Operation Chokepoint 2.0 was executed on crypto-friendly banks.
He also noted an obvious early warning of an upcoming United States CBDC, or digital dollar, referencing a section of the report that seemingly touts the benefits of a US central bank-controlled currency. The supposed benefits of the digital dollar include cost savings, greater financial inclusion, improved monetary policy transmission, and reduced macroeconomic volatility.
Critics of the report have argued that it relies on outdated knowledge and misunderstands the broader developments in the digital asset space. With the rise of blockchain technology, people are able to take control of their finances without relying on traditional financial institutions. Cryptocurrencies can reduce transaction fees and settlement times, bringing more financial inclusion to those who may not have had access to traditional banking services.
Moreover, the report fails to take into account the emergence of decentralized finance (DeFi), which is bringing about a new financial system that is more secure, transparent, and decentralized. DeFi has gained a significant following in the past year, with the total value locked in DeFi protocols reaching over $160 billion at its peak in May 2021.
In conclusion, while the Economic Report of the President may cast doubt on the merit of digital assets, it fails to recognize the broader developments in the digital asset space, including the rise of DeFi, which is transforming the financial sector as we know it. As the industry continues to evolve and mature, it is important for regulators and policymakers to keep an open mind and work collaboratively with industry stakeholders to create a regulatory framework that supports innovation and protects investors.