The U.S. government seems to have begun its crackdown on crypto. Today (March 9), President Joe Biden signed an executive order to begin a governmental examination of the potential risks and benefits of cryptocurrency.
To date, the U.S. government has failed to align itself under a unified approach to cryptocurrencies. But with this executive order, the government has taken the first steps towards establishing a comprehensive national policy for digital assets. According to a White House fact sheet, the measure introduced today contains directives focused on six key areas: consumer protection, financial stability, illicit activity, U.S. competitiveness, financial inclusion, and responsible innovation.
But what does that mean for NFTs?
It’s true that NFTs are a type of token and aren’t the same as a cryptocurrency. However, NFTs live as digital assets on the blockchain, and they are purchased, sold, and valued — almost exclusively — using crypto. As a result, this executive order will have a significant impact on the community. Of course, the executive order will undoubtedly have a more notable impact on crypto markets. But here, we’re focussing on the measures listed within the executive order that relate to NFTs specifically.
For those who are interested, a full synopsis of the executive order can be viewed via the White House website. Now let’s dive in.
NFTs and consumer protection
With the order, the Department of the Treasury is directed to work with necessary agencies to develop policy recommendations that “address the implications of the growing digital asset sector and changes in financial markets for consumers, investors, businesses, and equitable economic growth.” In other words, the department needs to assess the impact that crypto has and create frameworks to monitor and regulate this impact.
This will likely have the largest impact on consumers.
The NFT space has been riddled with scams, and a serious lack of accountability continues to plague collectors. Consumer protections will likely mean widespread changes for all within the NFT ecosystem, but especially as it relates to the anonymity that, to date, many creators have enjoyed. This could bring in new forms of accountability that end up benefitting collectors. But of course, only time will tell whether these changes will be overwhelmingly beneficial or detrimental to the NFT ecosystem.
We will also likely see a number of official legal definitions enter the space as well. This is because the government will need to determine how it distinguishes artists, collectors, and project builders in relation to traditional legal definitions like consumers, investors, and businesses.
NFTs and financial stability
In the eyes of the U.S. government, an asset is any resource with economic value that is expected to provide a future benefit to its holder. NFTs are a type of digital asset, and many NFT traders have accrued a decent profit using these assets.
In truth, that’s a bit of an understatement. The total NFT sales volume went from $94.9 million to over $23 billion in just over a year, and many individuals have raked in millions. But with ups, there are always downs. This can wreak havoc on economies and cause many businesses and individuals significant losses.
With this measure, Biden is encouraging the Financial Stability Oversight Council to identify and mitigate systemic financial risks posed by digital assets, aka crypto and NFTs. Although this measure is directed towards global financial stability, it likely means new policy to address any regulatory gaps, new policies to increase stability, and the possibility of additional taxation on crypto and digital assets.
Additionally, creators who commit fraud (and influencers who promote scams) may soon be reading new policies that put them in very hot water.
Illicit activity perpetrated via NFTs
The illicit activity measure hopes to address any possible national security risks posed by the illicit use of digital assets, including using NFTs for things like money laundering. With this measure, Biden likely hopes to specifically crackdown on large-scale issues like ones that resurfaced in the wake of the recent Bitfinex hack arrests. But it could also lead to new regulations focusing on NFT attacks, like the attacker who stole millions from users on OpenSea.
In order to mitigate illicit finance and national security risks, the order states that this measure will be carried out by an “unprecedented focus of coordinated action across all relevant U.S. Government agencies.” This will likely make many individuals happy. Countless people have been calling for action from the U.S., as concerns have been raised that Russia may attempt to skirt sanctions by utilizing crypto art.
Yet, while Biden’s executive order has the potential to mitigate illicit uses, it could also negatively affect the NFT ecosystem by implementing additional sanctions, like those that recently served to ban Iranian artists from accessing prominent crypto and NFT services.
NFTs and U.S. competitiveness
The U.S. competitiveness measure focuses on the U.S. solidifying a competitive edge over other countries in relation to crypto development. Specifically, the order proposes to “direct the Department of Commerce to work across the U.S. Government in establishing a framework to drive U.S. competitiveness and leadership.”
According to CNBC, crypto industry figures have been calling for such actions for some time.
Biden hopes that this framework will serve as a foundation for agencies, enabling them to integrate U.S. competitiveness as a priority into their policy when it comes to digital assets.
In this respect, the NFT community might see more governmental support, as many NFT DAOs and NFT collections contribute greatly to U.S. competitiveness.
Financial inclusion and responsible innovation in NFTs
Financial inclusion and responsible innovation seem to go hand in hand with the executive order. With these measures, Biden aims to affirm the critical need for safe, affordable, and accessible financial services as a U.S. national interest.
This is where the U.S. interest in developing governmental cryptocurrency comes into play. Political leaders like Andrew Yang have continued to advocate for crypto as a way to combat poverty in the U.S., but it seems that Biden aims to approach digital asset innovation from within the government.
With these measures, Biden has empowered the Secretary of the Treasury and all relevant agencies to “produce a report on the future of money and payment systems,” which comes complete with plans to explore the possibility of a digital version of the dollar.
Biden isn’t saying whether the U.S. will take an interest in launching its own digital currency, but the idea is on the table nonetheless. And although this may not immediately affect the NFT ecosystem, the U.S. government’s interest in the crypto market could significantly impact NFT prices across the board.
This story is developing and will be updated as new information comes out.