WASHINGTON ― No aspect of the cryptocurrency industry escaped criticism in a scathing report from the White House this week.
The White House Council of Economic Advisers delivered a 35-page takedown of the idea that digital assets like Bitcoin are useful as an alternative to government-backed currency, the claim that crypto’s underlying distributed ledger technology could have some utopian application, and the notion that it could serve as a hedge against inflation.
“Although the underlying technologies are a clever solution for the problem of how to execute transactions without a trusted authority, crypto assets currently do not offer widespread economic benefits,” the council writes. “They are largely speculative investment vehicles and are not an effective alternative to fiat currency. Also, they are too risky at present to function as payment instruments or to expand financial inclusion.”
The extended crypto criticism, which fills one chapter in a book-length annual report the White House sends to Congress each year, represents a stark change in tone from President Joe Biden’s administration.
One year ago, Biden signed an executive order asking federal agencies to look at ways of curtailing the risks of crypto without stifling “financial innovation.” This week’s report makes clear the White House thinks crypto can’t innovate much besides the same kinds of financial disasters that prompted Congress to regulate the banking industry a century ago.
“The risks presented by crypto assets stem from excessive speculation, high leverage, run risk, environmental harm from crypto asset mining, and fraudulent activities that harm retail investors and corporations,” the report says.
The White House also notes that crypto assets “are the standard form of payment extorted from victims of ‘ransomware,’ whereby a malicious actor hacks an organization and demands payment to release control of the victim’s network and often to purportedly forgo leaking the victim’s stolen data.”
The supposed promise of crypto is that it operates on a peer-to-peer network of computers without an institutional intermediary like a bank or a government. In the White House’s view, that is also its fundamental problem.
What accounts for the White House’s newfound hostility? Back when Biden issued his executive order, the crypto industry was worth more than $3 trillion and had been flying high, with stars like Tom Brady and Larry David espousing its benefits in Super Bowl advertisements.
Since then, crypto has suffered several high-profile embarrassments, such as the collapse of a so-called “stablecoin” and the crypto exchange FTX, whose founder Sam Bankman-Fried allegedly committed all manner of financial crimes in the course of becoming a media darling. In the past year, the industry has lost about two-thirds of its value — meaning people who invested on Brady’s advice likely lost money.
Crypto players had hoped Congress might step in and free the industry from strict regulation by increasingly hostile federal agencies like the Securities and Exchange Commission; the White House suggested in its report that no new laws are needed.
“Much of the activity in the crypto asset space is covered by existing regulations and regulators are expanding their capabilities to bring a large number of new entities under compliance,” the White House said.
The Blockchain Association, an industry lobbying group, said Tuesday it was disappointed by the White House report.
“We urge the Biden administration to consider how it will be remembered: as a leader of profound innovation or a roadblock to a global tech revolution,” Blockchain Association CEO Kristin Smith said in a statement.
Sen. Cynthia Lummis (R-Wyo.), a leading cheerleader for crypto on Capitol Hill and herself a major crypto investor, also pushed back against the White House report during an interview with HuffPost, saying the White House should support new legislation to regulate the industry.
Lummis then held up her Apple iPhone and directed Siri, the phone’s digital voice assistant, to tell her the current market price of a Bitcoin. Siri complied by saying “$28,700.” (An hour later, Bitcoin’s price fell to around $26,800.)
“I would suggest commodities have a value and Bitcoin is a commodity,” Lummis said, satisfied by Siri’s answer. “If a person is looking for short-term gain, it’s the wrong asset to be in. Just like other assets, it should be part of a diversified asset allocation. But to suggest it has no economic benefit or value is absolutely wrong.”