Regulation is coming for the cryptocurrency market. That's likely a good thing for crypto investors, experts say.
President Joe Biden signed an executive order Wednesday morning to establish the first-ever federal U.S. strategy on cryptocurrencies and any future U.S. central bank digital currency.
The executive order calls on regulators including the Treasury Department to assess the risks of digital currencies, develop policy recommendations and "ensure sufficient oversight and safeguard against any systemic financial risks posed by digital assets," according to a White House fact sheet.
In a statement from the White House, National Economic Council Director Brian Deese and National Security Advisor Jake Sullivan said, "Fundamentally, an American approach to digital assets is one that encourages innovation but mitigates the risks to consumers, investors, and businesses, broader financial stability, and the environment."
Crypto prices jumped on the news, with bitcoin climbing more than 9% from its 5 pm E.T. price Tuesday, according to data from CoinMarketCap. Bitcoin's price was around $42,000 per coin as of Wednesday morning. The price increase initially started Tuesday after the Treasury Department reportedly accidentally published a statement on the executive order, which hadn't yet been officially announced.
While some cryptocurrency advocates are anti-regulation due to concerns that it could hurt innovation, experts say regulation could actually be a positive thing for crypto adoption, safety and more.
How crypto regulations could impact adoption
Around 16% of adult Americans — approximately 40 million people — have invested in, traded or used cryptocurrencies, according to the White House fact sheet. But because of the lack of government oversight and extreme price volatility, many investors have been hesitant to jump on the crypto bandwagon, and financial advisors have held off on recommending it in portfolios.
That could change with more regulation, says Edward Moya, senior market analyst at foreign exchange trading firm OANDA.
"If the average investor feels much more confident in the crypto space being safer, there could be tremendous growth here," Moya says. "A lot of investors would become more excited about it."
John Wu, president of Ava Labs, which supports the development of the Avalanche public blockchain, agrees that regulation could help spur adoption.
"Users, businesses, and projects would have clear guidelines for what they can do and responsibilities like taxes and compliance reporting," Wu told Money via email.
How regulations could affect crypto prices
While it's hard to say what will happen to crypto prices in any given period of time, regulations could boost crypto prices over the long-term.
The overall crypto market cap — which currently sits around $1.8 trillion — could double within two years if a successful round of regulations is put in place, Moya says.
Down the road, when regulations allow the market to stabilize, volatility will subside a little, Tally Greenberg, head of business development at Allnodes told Money via email.
There will be fewer assets that hype overnight for the wrong reason, which is a positive development, Greenberg added.
How crypto regulations could help with security
Roughly $14 billion in fraudulent transactions occurred in the cryptocurrency world in 2021, up by 79% from a year earlier, according to data firm Chainalysis, Money previously reported. Securities and Exchange Commission chairman Gary Gensler has called crypto the "the Wild West" due to the lack of investor protection.
The White House's order is looking to change this, as it will "safeguard the long-term efficacy of critical national security tools like sanctions and anti-money laundering frameworks," according to Deese and Sullivan.
Experts say more safety in the space is welcome.
"Better security is required for crypto exchanges and investors that frequent these platforms," Greenberg says.
How crypto regulations could spur innovation
Biden's order will "help position the U.S. to keep playing a leading role in the innovation," of the digital assets ecosystem at home and abroad, according to the White House's statement — and experts agree that regulation could actually help with technological growth in the crypto industry.
"It could be an amazing opportunity for the U.S. to solidify a comprehensive, but pragmatic policy framework for cryptocurrencies that not only spurs more innovation, but entrenches the U.S. as a leader in blockchain and internet-based economies," Wu says.
Having additional consumer protection put in place could provide a path to more products for crypto investing, like the bitcoin exchange-traded fund crypto advocates have long been pushing for.
Cameron Winklevoss, co-founder of crypto exchange Gemini, called the executive order "a watershed moment" that "paves the way for thoughtful national crypto regulation that will allow builders to build onshore and ensure that the US remains a leader in crypto," in a tweet Wednesday.
"Crypto innovation is not just about a new asset class, but also creating transformational financial infrastructure that eliminates unnecessary intermediaries, democratizes participation, and empowers all of us," Winklevoss added.