The White House Council of Economic Advisors released a 35-page report that disproves the claims that cryptocurrencies like Bitcoin may be used as a hedge against inflation, as a replacement for fiat money, and as an application of distributed ledger technology.
The council states that although the underlying technology are a brilliant approach to the issue of how to carry out transactions without a trusted authority, crypto assets as of right now do not provide broadly felt economic advantages. They are ineffective substitutes for fiat money since they are primarily speculative in
vestment instruments. Also, they are now too dangerous to serve as payment instruments or to increase financial inclusion.
The extensive condemnation of crypto, which takes up one chapter of a book-length annual report the White House delivers to Congress every year, marks a significant shift from the administration of President Joe Biden.
Biden signed an executive order a year ago requesting that federal agencies look at methods to reduce the dangers associated with cryptocurrencies without limiting “financial innovation.” The White House believes that crypto can only produce the same types of financial catastrophes that led Congress to regulate the banking industry a century ago, according to a report released this week.
According to the paper, the dangers posed by crypto assets are due to overly aggressive speculation, high leverage, run risk, environmental damage from mining crypto assets, and fraudulent actions that hurt both corporate and retail investors.
Crypto assets are the traditional form of payment extorted from victims of ‘ransomware,’ when a hostile actor accesses an organization and demands money to release control of the victim’s network and oftentimes to supposedly avoid disclosing the victim’s stolen data, according to the White House.
The alleged promise of cryptocurrency is that it runs on a peer-to-peer computer network without the need for an institutional middleman, such as a bank or a government. That, according to the White House, is also the core issue.
What explains the growing hostility at the White House? The crypto market was worth more over $3 trillion at the time Biden signed his executive order, and celebrities like Tom Brady and Larry David had been praising its advantages in Super Bowl commercials.
Since then, cryptocurrencies have experienced a number of high-profile setbacks, including the demise of a so-called “stablecoin” and the crypto exchange FTX, whose founder Sam Bankman-Fried is accused of committing a variety of financial crimes while trying to gain media attention. Around two-thirds of the industry’s worth has been lost in the last year, so those who made investments based on Brady’s advise most likely lost money.
The Securities and Exchange Commission and other federal agencies have become increasingly hostile to the cryptocurrency industry, and players in the market had hoped Congress would intervene and free the sector from onerous regulations; however, the White House indicated in its report that no new policies are required.
The White House stated that a big portion of activity in the crypto asset field is covered by current regulations, and that authorities are extending their capacity to bring a significant number of new companies under compliance.
An industry lobbying group called the Blockchain Association expressed its disappointment with the White House study on Tuesday.
Blockchain Association CEO Kristin Smith issued a statement urging the Biden administration to think about how it wants to be viewed: as a pioneer of significant innovation or as a barrier to a global tech revolution.
During an interview with HuffPost, Sen. Cynthia Lummis (R-Wyo.), a key supporter of cryptocurrency on Capitol Hill and a significant investor herself, argued against the White House assessment and suggested that the administration adopt new legislation to regulate the sector.
Lummis then put up her Apple iPhone and asked Siri, the device’s digital speech assistant, to provide her with the price of a Bitcoin as it was currently trading. The response from Siri was “$28,700.” (One hour later, the price of one bitcoin dropped to about $26,800.)
Satisfied with Siri’s response, Lummis added, He would say that commodities have a value and that Bitcoin is a commodity. It’s the wrong asset to be in if someone is searching for quick money. It ought to be included in a diversified asset allocation, just as other assets. But it would be completely incorrect to say that it has no value or economic benefit.