White House report says it would a ‘grave mistake’ to deepen ties between crypto, broader financial system

The new White House report provides additional insight into the minds of the executive branch of the US federal government when it comes to regulating cryptocurrencies.

The Jan. 27 report author, a member of President Joe Biden’s economic team, stated that Congress was not acting quickly or efficiently enough in terms of providing regulatory clarifications to the public,

Report authors Brian Deese, director of the National Economic Council, Arati Prabhakar, director of the White House Office of Science and Technology Policy, Cecilia Rouse, chair of the Council of Economic Advisers, and National Security Adviser Jake Sullivan – called in Congress to “expand the powers of regulators to prevent asset misappropriation.” customers…and to reduce conflicts of interest.”

The report adds that laws should be enacted to separate crypto banking from traditional banking, as is the case The Glass-Steagall Act 1933, which separated commercial and investment banking.

In addition, the report urges Congress to act to reduce the type of risky behavior, albeit without naming it, namely Silvergate Capital, a crypto bank holding company that holding billions in deposits from some of the industry’s most nefarious players, including FTX and Genesis.

Congress could also strengthen transparency and disclosure requirements for cryptocurrency companies so that investors can make more informed decisions about financial and environmental risks.

After the massive industry collapse from the stablecoin TerraUSD (UST) to the FTX exchange, the report reiterates that billions of institutional and retail investment dollars have evaporated, causing irreparable losses for investors:

Many everyday investors who trust cryptocurrency companies—including young people and people of color—have suffered serious losses.

The report also serves to correct “the proliferation of false or misleading claims about crypto assets insured by the Federal Deposit Insurance Corporation,” the White House said.

Reiterating an oft-cited White House claim that crypto cybercrime has been used to fund North Korea’s ballistic missile program, “there is poor cybersecurity across the industry that allowed the Democratic People’s Republic of Korea to steal over a billion dollars to fund its aggressive missile program, the report warns law enforcement to be aware of crypto cybercrimes that can be used to fund terrorist organizations and/or rogue nation-state actors.

Nevertheless, the administration offered its support and guidance to law enforcement agencies in the report, stating that “to help law enforcement, that is [Congress] could strengthen penalties for violating illicit finance rules and keep cryptocurrency intermediaries from tipping off criminals.”

The report ends by warning Congress that it would ultimately be a “big mistake to enact legislation that reverses course and deepens the relationship between cryptocurrencies and the wider financial system.”

Adding that while many of these problems are not endemic to the crypto industry writes heavily, innovation and creativity in the sector will eventually have to meld with increased regulatory protection and oversight.

The Administration wholeheartedly supports responsible technological innovations that make financial services cheaper, faster, safer and more accessible […] Safeguards will ensure that new technologies are safe and useful for all—and that the new digital economy works for the many, not just the few.