The Revolving Door Project, a Prospect partner, scrutinizes the executive branch and presidential power. Follow them at therevolvingdoorproject.org.

A few weeks ago, a ransomware cyber attack breached Colonial Pipeline’s systems, forcing the company, which transports gasoline to much of the Southeast, to halt its operations. Shortly after this episode, hackers targeted JBS, the world’s largest meat producer, temporarily shutting down all of its U.S. beef plants. In both cases, the affected parties paid the hackers with the popular cryptocurrency Bitcoin. (The Justice Department was able to retrieve a significant portion of the Colonial ransom.) These attacks, coupled with Bitcoin’s carbon emission–heavy mining process, have led to calls to ban the cryptocurrency.

Although designed as a fiat currency alternative, Bitcoin and other cryptocurrencies are simply speculative investment vehicles with limited social and economic value. Companies such as Coinbase, a cryptocurrency exchange, have already cashed in on consumers’ desire to tap into the speculative nature of these digital assets. And now, Wall Street also wants a piece of the pie. Major industry players, including Fidelity Investments and SkyBridge, have pushed the Securities and Exchange Commission (SEC) to approve the launch of Bitcoin exchange-traded funds. Alongside Fidelity, Paradigm, Coinbase, and Square established a new lobbying group that aims to advance crypto.

The Biden administration’s work on cracking down on Bitcoin ransom payments needs to be supplemented by addressing the entry of various cryptocurrencies into the mainstream. There are policy options that would leverage the best attributes of digital currencies without the rampant speculation and fraud potential.

In the long term, the Biden administration should work with Congress to encourage the creation of e-cash by the Treasury Department and a central bank digital currency by the Federal Reserve. E-cash is a bearer instrument similar to physical banknotes that would allow individuals to store, send, and receive token-based digital dollars. A central bank digital currency is a ledger-based instrument that would allow individuals and businesses to hold digital dollar accounts recorded as liabilities in the central bank’s accounts. The digital dollar would be a key component of the plan to extend the provision of Federal Reserve Accounts (FedAccounts) to include individuals and small businesses.

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Expanding access to the Federal Reserve’s bank accounts is a true way to foster financial inclusion. Working in collaboration with the Postal Service, the Federal Reserve would be able to offer government-backed digital dollars and bank accounts to people across the country. This public provision of financial services would lead to a greater number of banked households with access to no-fee bank accounts and real-time payments. To address privacy concerns attached to the idea of a state-led digital currency, account-based digital currency should be complemented by an electronic equivalent of cash, allowing parties to retain their liberties to privately transact in the public arena.

The administration’s newly announced requirement that businesses report cryptocurrency transactions above $10,000 to the Internal Revenue Service is a welcome move to limit tax evasion. As the administration ramps up tax enforcement of digital assets, it should consider, alongside congressional Democrats, a broad financial transactions tax that would include cryptocurrency trading. The benefits of a financial transactions tax are widely acknowledged. It reduces the volume of usually unnecessary trading, freeing up economic resources for other societal uses.

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All of this, however, would require Congress to grant new powers to the Fed and the Treasury. That poses significant challenges, which underscores the need for Biden’s appointees to look at their existing agency powers and see how they can apply to the problems posed by crypto. This, after all, is what the crypto and interrelated “fintech” industries are doing: They design their products to skirt existing regulations and powers. Biden’s team shouldn’t unilaterally surrender millions of people’s financial security.

Take investor protection. At the moment, most crypto exchanges—businesses that allow customers to trade cryptocurrencies more easily—are unregulated, creating opportunities for fraud and manipulation. The Securities and Exchange Commission already decided against including Bitcoin and other digital currencies themselves in its 2021 regulatory framework, as Chair Gary Gensler challenged Congress to empower his agency to provide the necessary oversight to ensure investor safety. However, as more individuals begin to own these digital assets, preventing fraud at the unregulated exchanges where they transact, and which report artificially created trades, becomes hugely essential.

Meanwhile, the SEC can still bring enforcement actions against individuals and businesses that flout securities law by issuing unregistered securities. While Bitcoin was created by an anonymous coder using the pseudonym Satoshi Nakamoto, coins like Ripple’s XRP were created by actual companies, and appear to serve no purpose besides enriching the company itself. Hence, they appear to be unregistered securities. The agency has brought forward 75 enforcement cases in the past eight or so years against cryptocurrencies, mainly targeting initial coin offerings. More robust enforcement of the space must be a priority for the Biden administration’s SEC.

Additionally, the SEC should continue denying Wall Street players the opportunity to found Bitcoin exchange-traded funds, since the necessary fraud and investor safeguards are still not in place. Allowing institutional investors to step into a space with little to no rules to prevent fraud and manipulation is antithetical to the public interest.

Interagency cooperation is essential to ensuring the Biden administration adequately manages the risks associated with the growth of cryptocurrency.

The growth of decentralized finance (DeFi) is another issue that requires a robust regulatory response. DeFi uses cryptocurrencies and “smart contracts” on blockchain to create financial instruments and provide financial services. The aim here is to cut out financial intermediaries such as banks and asset managers. Although these intermediaries have a spotty history, they operate in a regulated space and have a fiduciary duty to act in the best interest of their customers. Simply put, they can (and should) be held accountable for misdeeds. DeFi providers cannot.

As DeFi creeps into the derivatives market, the Commodity Futures Trading Commission should look into the risks and legality of an unregulated derivatives market operating alongside supervised offerings. Appointing a chair to the commission who acknowledges the importance of oversight over this growing market would be a great move for the Biden administration. Actually, nominating any chair, over five months into Biden’s term, would be an improvement.

Finally, there’s the issue of bank charters, the holy grail of legitimacy (and consumer deposits) for many fintech firms and crypto exchanges. The Office of the Comptroller of the Currency, an independent bureau housed in the Treasury Department, confers national charters to financial institutions that meet the eligibility requirements. However, Donald Trump’s acting comptroller, Brian Brooks, who has since moved on to an executive job at crypto exchange Binance.US, weakened the eligibility requirements for a national trust charter.

The new interpretation, which was introduced with no public input, led to the conditional approvals of charters for three crypto firms. This allows cryptocurrency firms to operate as nondepository national banks, since there are no requirements for FDIC insurance. It was an unnecessary risk to introduce into the financial system. The federal charter also preempts various state laws, freeing firms from grappling with stricter oversight local regulators typically perform in their states.

Biden’s acting comptroller Michael Hsu has committed to reviewing these crypto charters, which is a good first step. But in reality, firms that fail to meet the requirements applicable to banks should not be licensed to operate as one. Hsu’s OCC should withdraw the conditional approvals granted to the crypto firms.

Interagency cooperation is essential to ensuring the Biden administration adequately manages the risks associated with the growth of cryptocurrency, including illicit finance, tax evasion, investor and customer protection, shadow banking, and financial stability. On one hand, the Treasury Department, Federal Reserve, and Postal Service must work together to provide a suitably designed public option for financial services. On the other hand, the SEC, CFTC, OCC, FDIC, and Federal Reserve need to align their regulatory framework to guarantee protection for customers and the stability of the financial system. Personnel appointments would obviously play a huge role here, so the Biden administration must identify public interest–minded individuals who share the administration’s promise of equity to carry out the agenda at these agencies and subagencies.

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