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'Late to the game': Despite Biden executive order, US lags other nations regulating crypto

Sarah Elbeshbishi   | Paste BN
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  • Investors have sunk $1.7 trillion into crypto and the Biden administration is looking at regulation.
  • Some governments have emraced adoption and been burned - most notably, El Salvador.
  • And an increasing number of nations are issuing cryptocurrency bans, even as crypto proliferates.

The United States entered the global race to regulate crypto with President Joe Biden's executive order Wednesday and found itself lagging much of the rest of the world.

President Joe Biden signed an executive order Wednesday, mobilizing the Treasury Department to develop regulations for Americans currently using cryptocurrency while also calling on the Federal Reserve to investigate whether the country should create its own digital currency – a digital dollar.

"Fundamentally, an American approach to digital assets is one that encourages innovation but mitigates the risks to consumers, investors, and businesses, broader financial stability, and the environment," Brian Deese, the director of the National Economic Council, and Jake Sullivan, Biden's national security advisor, said in a Wednesday statement.

Despite Biden’s executive order, the US is far behind most of the world.

“The US is actually I think a little bit late to the game,” Daniel Ahn, a global fellow at the Wilson Center and former chief economist for the US State Department, said. “Many other countries have already been more active in trying to set up rules and regulations in place for the (decentralized finance) world as a whole.”

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With little government oversight, some believe cryptocurrencies are susceptible to price manipulation through a process such as “spoofing,” involving large trade orders that are placed with no intention of them being fulfilled with the hope of moving the price by drawing out trades from other investors.

But the number of cryptocurrencies continues to proliferate. A site that tracks cryptocurrencies and their prices, CoinGecko, reports that as of Wednesday, it is tracking the prices of thousands of cryptocurrencies that collectively have a market cap of $1.92 trillion. Of them, 41% of the market is held by Bitcoin.

Nations adopting crypto as legal tender

Some countries are looking to implement cryptocurrencies into their economy, including rolling out personal digital currencies or adopting already existing assets as legal tender, while others have already done so. 

El Salvador was the first country to adopt digital assets as a legal tender, declaring bitcoin its national currency in September 2021 and both the Bahamas and Nigeria launched centralized digital currencies in the past two years.

The Bahamas launched the Sand Dollar issued by the Central Bank of the Bahamas in October 2020, making it the first to establish nationwide Central Bank Digital Currency. Its creation was aimed to "promote inclusive access to regulated payments and other financial services for unbanked and underbanked communities and socio-economic groups," according to the country's website about the currency. 

Nigeria's launch of eNaira, also backed by a Central Bank of Nigeria in September 2021, made it the first country Africa to create and establish a CBDC.

Despite the move towards digital currencies, countries are still suspicious of crypto due to its lack of transparency and volatility. Within hours of launching bitcoin as its official currency, El Salvador stumbled in its rollout as the digital wallet used for transactions wasn't working and its value plummeting, dropping from more than $52,000 per coin to $42,000 before recovering roughly half that loss. 

El Salvador also drew sharp criticism from the International Monetary Fund and called for the country to reverse its decision. 

"There are large risks associated with the use of Bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities," the IMF said in January. 

Other countries, including China and India, have banned private cryptocurrencies and are instead looking to roll out an official CBDCs after piloting their respective currencies. 

Digital euro could be next

Some European countries and Jamaica are also among those looking to pilot their digital currency.

The European Central Bank announced last July that it would be launching a two-year program to pilot digital euro following their investigative report on the currency, which encouraged them to continue with digital currency.

“It has been nine months since we published our report on a digital euro. In that time, we have carried out further analysis, sought input from citizens and professionals, and conducted some experiments, with encouraging results,” ECB President Christine Lagarde said at the time of the project announcement. “Our work aims to ensure that in the digital age citizens and firms continue to have access to the safest form of money, central bank money”.

Andrew Holness, Jamacia’s prime minister, shared in February that the Bank of Jamaica will roll out their own digital Jamaican dollar in 2022 after their successful pilot program.

As the US begins to investigate crypto and, examines the possibility of a digital dollar, the Biden Administration could learn from other countries on ways to regulate and manage cryptocurrency and other digital assets since there isn't one single way of regulating it, according to Aha. 

"There's no single application for digital, decentralized finance. There's not going to be a one size fits all, I think, cryptocurrency," Aha said. 

While there isn't a specific way to regulate crypto, Aha stressed the importance of maintaining a balance of restricting the technology without suppressing its potential. 

"There needs to be a right balance between regulating it well enough that society can capture the benefits of this new technology while mitigating and minimizing any potential negative externalities that emerge from this without being so heavy handed or kind of suspicious at the beginning that it throttles the potential innovation and potential for good of this infant technology completely," Aha added.  

A minority of countries, including Algeria, Bangladesh, Egypt and Morocco, have completely banned the use of cryptocurrency and other digital assets, labeling the technology as too uncontrollable and untraceable for governments to regulation.

Since 2018, there was a significant increase of countries that issued cryptocurrency bans, according to the Library of Congress. In 2021, 42 countries had an implicit ban on crypto, 27 countries more than in 2018 when it was only 15.

Biden's cryptocurrency executive order

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