Earlier this week, Circle chief executive Jeremy Allaire told CNBC’s Squawk Box that he believes that the incoming Presidential Administration and President-elect Joe Biden will “ultimately be supportive of cryptocurrency.”
Allaire said that this is because the administration is “going to be focused on infrastructure changes that make America more competitive,” and that cryptocurrencies are “absolutely going to be a core building block in that.”
“[Crypto] represents a seismic shift as large as the commercial internet,” he commented.
And indeed, President-Elect Biden has expressed multiple times that he wishes for America to re-establish its position as a global leader in every sense, including financial technology.
According to a statement posted on JoeBiden.com, “Joe Biden will mobilize the talent, grit, and innovation of the American people and the full power of the federal government to bolster American industrial and technological strength and ensure the future is ‘made in all of America’ by all of America’s workers.”
‘Biden believes that American workers can out-compete anyone, but their government needs to fight for them,” he said.
Therefore, if Allaire’s statement that “[crypto] represents a seismic shift as large as the commercial internet” is correct, cryptocurrencies and blockchain technology could represent an important part of America’s future technological development.
“The Biden administration is making moves that signal their intent” with regards to crypto
This would require progress on multiple fronts: not only would technological innovation be required, but the United States would have to embrace the technology on a policy and regulatory level.
Patrick McLaughlin, the founder of Brane Capital, told Finance Magnates that “right now, I think Biden and most forward-thinking policymakers understand that not only are cryptocurrencies here to stay, but that they go way beyond bitcoin,” he said.
Indeed, “the choice is a lot like the one the US faced when Russia launched Sputnik: either participate and influence the sector for the better, or ignore it and leave others to shape its development — and ultimately reap the reward.”
McLaughlin also believes that the Biden administration’s intentions with cryptocurrency have been made clear with one of the administration’s cabinet picks.
“The Biden administration is making moves that signal their intent,” McLaughlin explained. For example, they have recruited Gary Gensler, who is a senior advisor to the MIT Media Lab Digital Currency Initiative, to join his transition team. To me, that’s like hiring Werner Von Braun to build your rockets.”
“It’s important because it signals that you intend to overcome the biggest barrier to crypto adoption at the moment — which is understanding the technology, and articulating what it is, and what it is not,” he added.
“For ordinary Americans,” a Digital Dollar could be “quite a leap.”
However, one thing that McLaughlin doesn’t foresee happening under the purview of the Biden administration is the advent of a United States central bank digital currency (CBDC); in other words, a ‘Digital Dolar.’
“It’s highly unlikely,” McLaughlin told Finance Magnates. “For ordinary Americans, it’s quite a leap.”
Indeed, “will Biden be able to explain what a ‘digital dollar’ is to folks in middle America and, if so, would they understand the opportunity and the risks if America is left behind? And how would the media spin it? Politically, it seems really fraught,” he said.
At the same time, however, developments elsewhere in the world could push the United States toward developing a CBDC–whether the American populace is ready for it or not.
“We will need to keep an eye on the rest of the world, too–for example, China,” McLaughlin said.
A central bank digital currency arms race?
Indeed, China is years ahead of the United States in terms of developing and issuing a national digital currency. Earlier this week, CNBC reported that Chinese e-commerce firm JD.com became the first online platform to accept the country’s digital currency, which is known as the digital yuan. Additionally, a total of 20 million digital yuan coins (worth USD$3 million) will be up for grabs in a lottery for residents in Suzhou.
While a digital yuan does not seem to present an immediate threat to the US economy or to global USD dominance, some analysts have predicted that a scenario could emerge in which digitizing the yuan could provide incentives for more international entities to begin using it–a factor that could make it more popular (and more competitive) in the long term.
The Year in Review for FintechGo to article >>
Therefore, a scenario could emerge in which countries will compete against one another for economic dominance with the usability of their CBDCs. William Quigley, co-founder of Tether, explained to Finance Magnates that “it boils down to which countries will adapt faster to the realities of digital currencies.
“The ones that do will attract the best entrepreneurs, innovate faster and remain globally competitive as the world’s wealth increasingly shifts from physical to non-physical sources of value,” he added. “The digital transformation of the global economy is upon us.”
“The stable-coins concept is starting to put pressure…on currencies issued by central banks.”
Patrick McLaughlin also pointed out that stablecoins issued by other nations are not the United States’ only potential competitors when it comes to digital currencies.
“The stable-coins concept is starting to put pressure – at least in principle – on currencies issued by central banks,” he explained. “And folks in the political center-left (like the Davos crowd) are beginning to imagine that a central bank backed cryptocurrency could transform how we hold and trade value across the world.”
And indeed, the United States has a number of advantages that could potentially be multiplied through the advent of digital currency: “if the political will is there, and if the administration has the bandwidth to do so, the US has a lot of advantages it can leverage,” McLaughlin said.
After all, the US has the “largest, most important economy in the world,” and the USD is “already the world’s currency”; the US is “home to the largest, most trusted public markets in the world, by far,” and the US is home to a “positive posture toward free markets and democracy — unlike authoritarian or centralized governments, which would have a hard time with the lack of control associated with decentralized, permissionless tokens.”
”The US should not be underestimated.”
Therefore, even though the US may not be at the forefront of CBDC development or crypto regulation more generally, “the US should not be underestimated,” McLaughlin said.
“They can be very fast followers – and able to lie in wait and see what works, how the technology and markets evolve and move quickly to replicate. This is what I suspect will happen.”
And even if stablecoins aren’t an immediate part of America’s future with crypto, there are other policy changes that need to happen in order to support the development of the cryptocurrency ecosystem in the United States.
“There are two big concerns around tax compliance and AML,” McLaughlin told Finance Magnates. “Regulators need to feel confident they understand and can trust what is written on blockchains and public ledgers.”
“This technology is a greater tool for law enforcement than it is for criminals.”
Indeed, McLaughlin pointed out that cryptocurrencies can actually bring more tools to government agencies than those currently available with cash: “while it is easier to cross borders with cryptocurrencies, they are highly traceable,” he said.
“Cryptocurrencies are a much more secure and accountable tool for trade than cash — which is harder to trace and easier to misuse. I think once more people realize it helps the ‘good guys’ and hurts the ‘bad guys,’ the comfort level will increase.”
Indeed, Perianne Boring, the founder and President of the political advocacy group known as the Chamber of Digital Commerce, told Finance Magnates in October that when it comes to concerns about cryptocurrency being used in illicit transactions, “this technology is a greater tool for law enforcement than it is for criminals.”
However, McLaughlin pointed out that in order for cryptocurrency to be usable by law enforcement agencies and casual users alike, regulation can’t be applied too heavily.
“The flip side is that there is a natural tension between regulation and openness,” McLaughlin said. “If centralized control is applied with a heavy hand, it can affect a currency’s fungibility, which in turn reduces usability and value. So a balance has to be struck.”
Regulations must also be developed to protect the public
Regulations also need to be developed that will keep the public safe from bad actors and give clear options of recourse for people who have been robbed or otherwise attacked in the cryptosphere.
“The other very important element is security, safekeeping, governance and oversight,” McLaughlin said. “How can the public be protected against fraud, theft, and mistakes?”
Indeed, while law enforcement around the world has become increasingly tuned-in to how victims of cryptocurrency hacks and episodes of fraud can be helped, there is still much work that needs to be done.
“In this respect, the blockchain and crypto space needs to be further legitimized by the kinds of standards, best practices and accountability normally found in the ‘classic asset’ world,” McLaughlin said. “There are also technological questions–such as who is keeping these assets safe? And how? That needs to be answered for this to happen.”