The Treasury Department was downbeat on crypto in two publications produced in response to the president’s executive order on digital asset development issued in March.
The United States Treasury Department released three publications related to digital assets Friday, in response to U.S. President Joe Biden’s executive order “Ensuring Responsible Development of Digital Assets.” One of them focuses specifically on crypto assets, and a shorter action plan looks at countering illicit finance risks.
The discussion of crypto assets in “Crypto-Assets: Implications for Consumers, Investors, and Businesses” takes a cynical tone from the beginning, with the introductory paragraphs of the report stating:
“The potential for blockchain technology to transform the provision of financial services, as espoused by developers and proponents, has yet to materialize.”
About half of the report is a descriptive survey of crypto assets, after which the authors turn to the risks they pose to users. It divides risks into three categories, the first of which is conduct risks, that is, practices within the ecosystem. The report alleges that losses from cryptocurrency fraud skyrocketed in 2021 and are on course to overtake that record this year. It also identifies transparency issues of various kind.
Operational risks, which include “deficiencies in information systems or internal processes, human errors, governance and management failures, or disruptions from external events” are given detailed consideration. Closely related but separately discussed are crypto-asset intermediation risks, which are the same risks investors face in traditional markets, such as volatility and custody issues, but form a “unique landscape” due to the nature of crypto.
Potentially the most valuable section of the report is a lengthy discussion of the opportunities and risks that crypto assets pose for vulnerable populations. This is especially so due to the extensive statistical information in the section.
The report makes three recommendations. It recommends vigilant monitoring, with increased enforcement, interagency cooperation and information sharing. It recommends agencies produce more guidance and rules, and that greater educational outreach is conducted.
The “Action Plan to Address Illicit Financing Risks of Digital Assets” approaches digital assets from the perspective of national security. It recommends seven priority actions that mainly encompass monitoring and enforcement efforts domestically and internationally.
It also recommends updating Bank Secrecy Act regulations and increased engagement with the private sector through “the publication of official documents, discussions, and Treasury programs that enable public‐private and private‐private information sharing.”