[INTERVIEW] Joe Biden’s Crypto Executive Order: 3 questions to Thibault Schrepel

Dr. Thibault Schrepel, LL.M., is an Associate Professor of Law at VU Amsterdam University, where he co-directs the Amsterdam Law & Technology Institute, and a Faculty Affiliate at Stanford University CodeX Center, where he created the “Computational Antitrust” project that brings together over 60 antitrust agencies. His research focuses on blockchain antitrust and computational antitrust. He published the world’s most downloaded antitrust articles in 2018, 2019, 2020 and 2021, and his latest book, Blockchain + Antitrust, was published in September 2021.

Interview by Rachel Griffin

What does the Executive Order that Joe Biden signed this week say, and what do you think Biden is hoping to achieve?

There is a lot to gain in positioning the country as crypto-friendly. The industry is growing, and governments are competing to attract investors. At the same time, the executive order also stresses that ‘16 percent of adult Americans – approximately 40 million people – have invested in, traded, or used cryptocurrencies.’ That also explains why Biden is issuing this order; he wouldn’t do it if just 100.000 Americans had crypto. So, there are two complementary objectives: attracting investors and protecting users. Now, let me unpack this order.

First, it encourages “regulators to ensure sufficient oversight and safeguard against any systemic financial risks posed by digital assets.” This statement is central. Agencies must ensure they have the relevant expertise and tools to detect potential risks and infringements. Let us hope the order will increase federal agencies’ budget to invest in computational tools – this includes the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), the Department of Justice’s Antitrust Division, the Federal Trade Commission (FTC), and many more. For example, the order says the objective is to ‘mitigate economy-wide (i.e., systemic) financial risks posed by digital assets.’ Economists such as J. Doyne Farmer from Oxford have shown that agent-based modelling (i.e. a computer-based simulation) can help identify these risks.

Second, the order underlies the need to implement ‘coordinated action across all relevant U.S. Government agencies’ to deter illicit uses. According to Chainalytics, only 0.15% of cryptocurrency transactions are of criminal origin, and money laundering accounted for just 0.05% of all cryptocurrency transaction volume in 2021. Looking at all crypto cases in the United States over the past decade, 34% were criminal compared to 82% civil. There is a disconnect between what we see in crypto ecosystems and what we imagine happens. The order is not surprising in that respect, but I hope we will not lose sight of the most pressing issues in the space (i.e. issues of contract law, privacy law, antitrust law, etc.).

Third, the order claims to ‘Promote U.S. Leadership in Technology and Economic Competitiveness to Reinforce U.S. Leadership.’ It says the objective is ‘leveraging of digital asset technologies (…) This framework will serve as a foundation for agencies and integrate this as a priority into their policy, research and development, and operational approaches to digital assets.’ I firmly believe that this is the right approach: policymakers need to understand blockchain’s potential if they want to regulate it properly. In general, tech regulation focuses only on the issues, but blockchain (more than other technologies) requires a different approach. Blockchain’s central features (e.g. immutability, decentralisation, distribution…) explain why it improves the common good, but these features also create legal challenges. Policymakers face the challenge of maintaining these core characteristics while enforcing legal rules and standards. 

Fourth, it seeks to ‘promote equitable access to safe and affordable financial services,’ especially to for ‘communities that have long had insufficient access to financial services.’ Doing so is key to creating a more inclusive economy. African Americans hold about 4% of $116 trillion in wealth in the U.S. At the same time, ‘about 2 in 5 Black adults say they are likely to purchase or invest in Bitcoin, compared to roughly 3 in 10 adults overall’. We need more of that. 

Fifth, Biden says he wants to ‘support technological advances.’ Let us hope this means national grants and funding for research institutions. We also need more of that in Europe. And last, the order underlines the necessity to ‘explore a U.S. Central Bank Digital Currency (CBDC).’ I believe the U.S. will have a hard time convincing today’s users to adopt a cryptocurrency with a centralised monetary policy, but this tendency could change as blockchain adoption increases, as users who are not anti-centralisation will appear in more significant numbers.

Overall, this order features several good ideas (see my comments here). Now, their implementation will play a key role in crypto adoption. To be put bluntly, forthcoming rules will move crypto users either away from the cypherpunks’ ideas, or closer to them – depending on their nature.

Why do you think the Biden administration has chosen this particular moment to intervene?

Blockchain adoption is growing. There is a fear that part of the population could lose its investments overnight should crypto collapse. The U.S. federal government wants to avoid that situation, because this would impact the entire U.S. economy by cutting down on other investments and sales.

Faced with a phenomenon of mass adoption, public institutions have stopped being ‘blockchain sceptics.’ They have also stopped being ‘neutral’ and, in a sense, have become pro-blockchain. This new approach appears clearly in Biden’s executive order, which stresses that ‘the rise in digital assets creates an opportunity to reinforce American leadership in the global financial system and at the technological frontier.’ Therefore, one can expect that the United States will cooperate to ensure global regulation where necessary and avoid a race to the bottom. The United States will compete with other nations to attract investments and developers.

Cryptocurrency enthusiasts often emphasise their supposed decentralisation and freedom from all government control. But at the prospect of more regulation, the value of Bitcoin and other cryptocurrencies jumped significantly. What do you think the administration’s new policies will mean for this industry in the long term?

Coming from a Darwinian perspective, I believe that shaping the legal environment impacts blockchain development. Doing so can be for the better by providing crypto users and investors with a more stable legal landscape. Stability helps growth because it avoids massive disruption. So far, blockchain ecosystems have reacted positively to Biden’s order because it goes in this direction.

That being said, regulators are getting increasingly interested in blockchain core features. They are getting involved with particular blockchain species and varieties, instead of focusing solely on their environment. The European Commission is tackling smart contracts in the Data Act. The United States wants to address privacy and environmental harm, which could result in favouring/prohibiting specific design. I fear this approach. Experience shows that we fail to impose suitable and long-lasting design choices from ‘above,’ i.e. in a centralised fashion. I hope legal institutions won’t try to replace Darwin with the hand of God. For more on that, see my book.