White House report says it would a ‘grave mistake’ to deepen ties between crypto, broader financial system

A new White House report provides additional insight into the mind of the executive branch of the US federal government when it comes to regulating cryptocurrencies.

The authors of the Jan. 27 report, members of President Joe Biden’s economic team, suggest that Congress is not acting fast nor efficiently enough when it comes to providing regulatory clarification to the public, 

The authors of the report, Brian Deese, director of the National Economic Council, Arati Prabhakar, director of the White House Office of Science and Technology Policy, Cecilia Rouse, chair of the Council of Economic Advisors, and National Security Advisor Jake Sullivan – called on Congress to “expand regulators’ powers to prevent misuses of customers’ assets…and to mitigate conflicts of interest.”

The report added that legislation should be enacted to separate crypto banking from traditional banking, much like the Glass-Steagall Act of 1933, which separated commercial and investment banking.

In addition,  the report urged Congress to act to mitigate the types of risky behaviors, albeit without naming names, i.e., Silvergate Capital, the parent company to a crypto bank that held billions in deposits from some of the industry’s most nefarious actors, including FTX and Genesis. 

Congress could also strengthen transparency and disclosure requirements for cryptocurrency companies so that investors can make more informed decisions about financial and environmental risks. 

In the wake of major industry wide collapses from the stablecoin TerraUSD (UST) to the exchange FTX, the report reiterates that billions of institutional and retail investment money has evaporated, causing irreparable harm to investors:

Many everyday investors who trusted cryptocurrency companies—including young people and people of color—suffered serious losses.

The report also served to correct “the proliferation of false or misleading claims about crypto assets being insured by the Federal Deposit Insurance Corporation,” the White House said. 

Repeating the often-cited White House claim that crypto cybercrime has been used to fund North Korea’s ballistic missile program, “there is poor cybersecurity across the industry that enabled the Democratic People’s Republic of Korea to steal over a billion dollars to fund its aggressive missile program,” the report cautioned law enforcement to be on the lookout for crypto cybercrime that could be used to fund terrorist organizations and/or rogue nation-state actors. 

The administration nevertheless offered its support and guidance to law enforcement agencies in the report, stating that ” to aid law enforcement, it [Congress] could strengthen penalties for violating illicit-finance rules and subject cryptocurrency intermediaries to bans against tipping off criminals.”

The report concluded with a warning to Congress that it would ultimately be a “grave mistake to enact legislation that reverses course and deepens the ties between cryptocurrencies and the broader financial system.”

Adding that while many of these problems are not endemic to the crypto industry writ large, innovation and creativity in the sector should ultimately co-mingle with increased regulatory safeguards and scrutiny. 

The Administration wholeheartedly supports responsible technological innovations that make financial services cheaper, faster, safer, and more accessible […] Safeguards will ensure that new technologies are secure and beneficial to all—and that the new digital economy works for the many, not just the few.