Why the US Government Should Regulate Cryptocurrency
The Biden Administration Executive Decree Developing a national policy on cryptocurrency and digital assets is an important first step in putting guardrails in place around a global market that is now worth more than $3 trillionsaid Wharton, professor of legal studies and business ethics Kevin Werbach.
The executive order issued in early March calls on government agencies to coordinate on six key priorities: protecting consumers and investors, preserving financial stability, mitigating the risks associated with illegal digital assets, promoting American competitiveness, ensuring financial inclusion, and guiding responsible innovation.
“We need experts working on these issues and working through the mechanisms of these agencies, so I give the administration a lot of credit for the work it took to align all these different groups to go from before,” Werbach said in an interview with Wharton Business Daily on SiriusXM. (Listen to the podcast above.)
Werbach, who wrote a recent opinion piece about the executive order, said the worries and confusion around cryptocurrency reminded him of the early days of the internet when companies like Yahoo, Amazon and eBay launched consumers into an uncertain new world of online shopping.
Under President Bill Clinton in the late 1990s, Werbach served as an adviser on new technology policy to the Federal Communications Commission. He helped lead a number of stakeholder organizations to develop the Framework for global e-commerce.
“There was this whole wave of e-commerce starting, and it was raising all kinds of legal and regulatory issues. Some have said we should push it back, we should stop it, we should tax it, it’s unfair competition with existing services,” Werbach recalled. “It was clear that a certain level of coordination was needed. It was clear that the White House, the US government, had to make its point. The rest of the world was watching us, trying to figure out how the government should handle the internet.
At the time, the Internet had about 100 million users, mostly in the United States and a handful of other countries, so America became the leader in Internet policy direction. But now, billions of people around the world have access to the internet, and other countries are moving forward with their own cryptocurrency regulations. This is why now is the time for the United States to act, he said. In addition to its $3 trillion market capitalization, cryptocurrency and digital assets involve large financial services companies, billions of dollars in transactions on decentralized finance platforms, and a multi-billion dollar mining industry.
“Many other governments are either looking to shut that down or attract business,” Werbach said. “It is not at all true to say that digital assets are unregulated or that the United States has done nothing. But the US government lacked a coordinated approach. To me, that sounds like what happened with the internet.
The professor said the global nature of digital finance presents a puzzle over how to impose national laws on an international system. Werbach leads the Wharton Blockchain and Digital Assets Projectwhich develops business and regulatory information on distributed ledger technology.
“It’s a big question, it’s a tough question, but it’s a solvable question,” he said. “We solved it with the internet, and we can solve it with digital assets as well.”
“It is not at all true to say that digital assets are unregulated or that the United States has done nothing. But the US government lacked a coordinated approach. – Kevin Werbach
Fight against digital currency fraud
Werbach is a proponent of integrating new technologies into existing financial infrastructure to ward off fraudulent activity with cryptocurrencies and digital assets. Just because digital currency is new doesn’t mean it shouldn’t be treated with all the seriousness of traditional currency. But this may require some creativity as the market is structured differently.
“If we are concerned about protecting investors from scams, fraud and market manipulation, then we care whether it happens on a traditional exchange or whether it happens on a digital asset exchange or on another platform,” he said. noted. “The question is not, can we avoid having the rules that protect investors apply to investors in these assets? The question is, how can we do this in a way that doesn’t cause too much damage to these markets? »
Werbach also champions the financial inclusion opportunities that come with digital currency. Financial inclusion is one of the Executive Order’s toughest priorities, and Werbach wants to make sure it actually happens. About 5.4% of US households were unbanked in 2019, according to government data. Although financial inclusion is progressing globally, the world Bank estimated in 2018 that 1.7 billion people still did not have access to banking services.
Overall, Werbach said he’s glad the federal government is moving forward because digital currency is “the future of the financial system.” To put that into perspective, the conversation around cryptocurrency used to be about avoiding government regulation. It has now evolved to recognize that government has an important regulatory role.
“Government doesn’t necessarily stop innovation,” he said. “Government often encourages and facilitates innovation because it creates these safeguards for people to adopt these things.”