The White House is making a case against crypto assets in its economic report released for 2023. The paper states that cryptocurrency assets are primarily speculative investment instruments, casting doubt on the purported benefits of cryptocurrencies.
“To date, crypto assets do not offer an investment with any fundamental value, nor do they serve as an effective alternative to fiat money,” the President’s Economic Report states.
Doubts on the Benefits of Crypto
The report highlights that in the US, crypto is not as effective a medium of exchange as the US dollar.
It added, “The strength of the US dollar is derived from several important factors, such as trust in government institutions and the legal system, but these factors are lacking in cryptocurrencies.”
The government paper also listed risk and volatility as additional drawbacks of cryptocurrencies. Furthermore, it identifies ‘run risk’ as a major issue with the stablecoin. The problem of run risk comes from the many redemption requests by depositors in both traditional and crypto markets.
The Economic Report comments, “An important difference between stable coins and bank deposits is that in the United States, bank deposits are subject to a broader set of regulatory and supervisory requirements.”
However, the demise of Silicon Valley Bank following the bankruptcy of the crypto sector was a crisis in the traditional banking industry. The crisis has been referred to as a “Lehman moment” for the technology sector by Cliff Marriott, co-head of technology, media and telecoms for Goldman Sachs in Europe.
Banking sector terminated with SVB fall
BeInCrypto recently analyzed several fundamental problems in the banking sector. Apart from the centralization of strong banking institutions, lack of public transparency is another area for improvement.
Especially considering that while cryptocurrencies offer ways to revolutionize finance, innovation is often stifled in traditional settings.
However, the economic report has a contrary view.
it was said,
“While the crypto asset ecosystem and its underlying technology introduces new potential, attempts to challenge fundamental economic principles have often resulted in financial disasters.”
According to a March 2023 report, DeFi applications claim to increase credit availability by reducing intermediary costs. However, according to the US government, it poses significant risks to investors and the larger financial system. This is because these platforms often allow users to trade and exchange with high leverage. They may also allow users to perform regulated tasks without complying with the rules.
US senators recently discussed the risks of “sham audits” related to cryptocurrencies in a letter to the Public Company Accounting Oversight Board. Sens. Elizabeth Warren and Ron Wyden reiterated in a March 21 letter the risks posed by ‘proof of reserve’ agreements performed by outside firms on behalf of auditors.
The senators reviewed how the use of digital assets presents special audit risks for businesses. He said that Chair Erica Y. There is a need for adequate risk assessment and audit response by audit firms, taking into account the views of Williams.
US explores introduction of CBDC to deal with crypto
The economic report also touched on the possibility of introducing a central bank digital currency (CBDC) to mitigate some of the risks associated with the private cryptocurrency industry.
It highlighted that the CBDC operates “under the supervision of a trusted authority”.
Last week, the US Federal Reserve announced that its FedNow service would launch in July. The apex bank’s statement regarding instant payment options gave rise to the discussion of CBDC testing.
The economic study acknowledges that a CBDC could achieve the government’s policy objectives but also identifies some risks. “Like one-to-one backed stablecoins, CBDCs may also pose credit availability risks,” the report cautioned.
disclaimer
BeInCrypto has reached out to the company or individual involved in the story for an official statement regarding the recent developments, but has not yet received a response.