In a new move that may likely have an impact, the White House is reportedly making a case against cryptocurrency in its released 2023 Economic Report. Accordingly, the paper asserts that crypto assets are speculative investment tools that cast doubts on the supposed benefits of the token.
Doubting Crypto’s Benefits
According to president Joe Biden’s Economic report, crypto tokens have offered no real value to investors nor served as an effective alternative to fiat currency since its inception. The report claims that cryptocurrency, contrary to widespread belief, is less effective than the USD in settling financial transactions in the United States.
It added that the US dollar derived its strength from several critical factors, like faith in government agencies and legal instruments. Hence, crypto still needs to have this institutional appeal.
The report also lists high risks and volatility as reasons why crypto is not an effective alternative to fiat. For stablecoin, the report identified “run a risk” as a major drawback for this asset class.
Run risks usually begin when several redemption requests by depositors in the crypto and traditional finance markets lead to liquidity crises for stablecoin issuers. The report noted that one crucial difference between stablecoin and bank deposits in the US is that bank deposits are subject to strict regulatory and financial safety requirements.
However, the demise of the Silicon Valley Bank (SVB) saw the contagion spread to the traditional banking system following the bankruptcies in the crypto sector.
Coming To Terms With SVB’s Collapse
In a recent analysis of the banking system’s fundamental flaws and the over-centralization of banking institutions, analysts opined a need to enhance transparency in the ecosystem. Given that disruptive innovations are stifled in the conventional banking space compared to crypto, the economic report noted that the underlying technology in the digital asset industry had been a source of concern.
The report further noted that decentralized finance (DeFi) seeks to enhance credit availability by cutting down on the costs of intermediary fees. However, the US government sees this as a significant risk to investors and the entire financial ecosystem.
The government’s reason is that these platforms allow investors to trade and exchange digital currencies with higher-than-usual leverage. In addition, the report stated that DeFi platforms allow users to perform other transactions without abiding by regulations.
In a recent letter to the Public Company Accounting Oversight Board, senator Elizabeth Warren and Ron Wyden discussed the risks associated with the proof-of-reserves reports. The lawmakers, which issued the letter on behalf of auditors, detailed the risks of digital asset audits to businesses.
In the letter, the lawmakers stressed that auditing firms must consider audit risk assessments and reports, as there are dangers in allowing unregulated reserves report to gain traction. The Economic Report discussed introducing central bank digital currency (CBDC) to mitigate the dangers of privately issued crypto assets.