On Digital Assets and the U.S. Treasury
Last week, a speech by U.S. Treasury Secretary Janet Yellen on Digital Assets included the following comments:
"Digital assets have grown explosively, reaching a market cap of $3 trillion last November from $14 billion just five years prior.
"Digital assets may be new, but many of the issues they present are not. We have enjoyed the benefits of innovation in the past, and we have also confronted some of the unintended consequences.
“People have a wide range of views when it comes to digital assets. On one hand, some proponents speak as if the technology is so radically and beneficially transformative that the government should step back completely and let innovation take its course. On the other hand, skeptics see limited, if any, value in this technology and associated products and advocate that the government take a much more restrictive approach. Such divergence of perspectives has often been associated with new and transformative technologies.
“The prices of Bitcoin and other cryptocurrencies have been quite volatile, which has inhibited their widespread use in payments. Adoption of cryptocurrencies for payments may be further inhibited by high fees and slower processing times than those associated with other forms of payment. As a practical matter, you’d have a hard time using cryptocurrency to buy a sandwich or a gallon of milk. Other digital assets – like stablecoins or potential Central Bank Digital Currencies – could succeed at being more widely used as a means of exchange, raising potential benefits and risks.
“Some have also suggested that the introduction of a Central Bank Digital Currency, or “CBDC”, could contribute to a more efficient payment system … a CBDC could become a form of trusted money comparable to physical cash, but potentially offering some of the projected benefits of digital assets … We must be clear that issuing a CBDC would likely present a major design and engineering challenge that would require years of development, not months.
“Regulation should be “tech neutral.”
OUR TAKE
Yellen’s view on “tech neutral” regulation suggests that oversight for digital assets may provide limited special treatment for cryptocurrencies, digital ledgers, etc. by the federal government (although actions by other nations, states and cities may differ).
As some pundits and investors promote the merits of cryptocurrencies, digital assets, distributed ledgers, Web3, etc. – developers will concede that current offerings have limitations. As a result, efforts such as Bitcoin and Ethereum may, over time, be succeeded by other innovative efforts.
Digital asset innovation will be broad-based. Successful innovators will address meaningful use cases - and should benefit by sharing their value proposition with minimal cryptocurrency jargon.