The first few weeks of Trump's term have involved a flurry of executive orders. Some have been dramatic, such as the federal government hiring freeze. Other orders have been toothless or vague, such as the order telling federal agencies they need to do what they can to reduce prices.
But Trump's EO on cryptocurrency is the one that caught my attention. It's titled: "Strengthening American Leadership in Digital Financial Technology," but what does that really mean?
The executive order has two main components: one related to decentralized cryptocurrency and another related to central bank digital currencies (CBDCS).
According to the order's stated purpose:
As with most government policy, the language sounds positive. Who doesn't want the United States to innovate and grow? But reading closer might give you pause.
Some of the content is indeed positive. For instance, the order requires federal agencies to allow citizens to "participate in mining and validation, transact with other individuals without illegal censorship, and maintain self-custody of digital assets."
Mining is the process by which new cryptocurrency tokens are generated. The process varies, but for cryptocurrencies like Bitcoin, mining involves using a computer to solve increasingly complex mathematical problems. The ability to mine is especially important because mining has been politically targeted by extreme environmental groups as a waste of energy. Eventually, the mathematical problems associated with mining become so difficult that computers will not be able to mine any more bitcoin, making the supply finite.
Allowing individuals to mine is fundamental to the cryptocurrency concept. Additionally, establishing protection to maintain self-custody of digital assets, keeping them out of the range of illegal attacks, is one of the most important aspects of cryptocurrency.
The order also seeks to "[protect] and [promote] fair and open access to banking services for all law-abiding individual citizens and private sector entities alike." This clause goes beyond crypto to traditional savings, and is particularly timely given a rise in politically influential consumer debate (which occurred with the trucker protests in Canada).
However, there are aspects about the order on the cryptocurrency front. For example, the order also states that the executive branch must:
[provide] Regulatory clarity and certainty based on technology-neutral regulations, frameworks that represent emerging technologies, transparent decision-making, and well-defined jurisdictional regulatory boundaries, all of which are essential to support a vibrant and inclusive digital economy and innovation in digital assets, permissionless blockchains, and distributed ledger technologies.
While I prefer clear regulations over vague directives, I also prefer user-regulated monetary innovation rather than bureaucrats. Time will tell exactly what the regulatory framework will look like.
While the order has upsides and downsides with regard to current crypto policies, the parts of the order that excite me the most are the portions on central bank digital currencies, or CBDCs. A CBDC is essentially a government-controlled version of cryptocurrency. As the Tariff has discussed in the past, CBDCs are a very dangerous idea, and it was concerning that the Biden administration was pursuing them.
So, what does Trump's executive order say about them? Take a look:
[The Trump administration is] Taking steps to protect Americans from the risks of central bank digital currencies (CBDCS), which threaten the stability of the financial system, individual privacy, and the sovereignty of the United States, including by prohibiting the establishment, issuance, circulation, and use of a CBDC within the jurisdiction of the United States.
Section 5 of the order covers how this will be done. According to the order, it is now illegal for bureaucrats within government agencies to pursue any plans to establish a CBDC unless required by law. In other words, barring the possibility of some bureaucrats breaking the law, CBDC initiatives must immediately end unless the Legislature passes bills requiring them.
This is a big step because establishing a CBDC would require significant political, bureaucratic, and technological infrastructure to implement. Trump's order puts a pause on the construction of that infrastructure that began under Biden.
On the net, Trump's order appears to have been taken well by cryptocurrency markets, with Bitcoin seeing a small price increase after the order's announcement. So, while the future of government cryptocurrency regulation remains unclear, the new administration's commitment to stopping CBDCs and protecting the rights of those who participate in cryptocurrency mining and transactions appears to be a good sign.