Innovation in digital assets is “mostly about creating artificial scarcity”, and crypto is “ignorant of basic economic principles,” says the White House.
This year’s White House annual Economic Report to the President has a negative outlook on crypto, emphasising the negative aspects of digital assets throughout the 513-pager document.
The 2023 Economic Report of the President is issued alongside a yearly update sent out by the US Council of Economic Advisers, and covers a range of topics regarding the US economy such as climate change, the rise of women in the workforce, imported goods, foreign investment, and education. Beyond that, several sections are dedicated to address what’s happening in the technology sector.
Regarding crypto, the report pulls no punches. The first mention of digital assets in this year’s drop of the Economic Report of the President asserts that “blockchain technology has fueled the rise of financially innovative digital assets that have proven to be highly volatile and subject to fraud.”
Five pages later, the report from the Council continues: “Although advocates often claim that digital assets, particularly crypto assets, are a revolutionary innovation, the design of these assets frequently reflects an ignorance of basic economic principles that have been learned in economics and finance over centuries,” ultimately calling crypto assets inherently ‘inadequately designed’, and is “often detrimental to consumers and investors.”
The report has two dedicated chapters in regards to digital markets: Chapter 7, “Competition in the Digital Economy: New Technologies, Old Economics,” and Chapter 8, “Digital Assets: Relearning Economic Principles.”
According to the report, the writers are convinced that crypto advocates are “relearning the lessons from previous financial crises the hard way,” and should educate themselves more on what has happened.
“In addition to the decentralised custody and control of money, it has been argued that crypto assets may provide other benefits, such as improving payment systems, increasing financial inclusion, and creating mechanisms for the distribution of intellectual property and financial value that bypass intermediaries,” the authors wrote. “So far, crypto assets have brought none of these benefits.”
The Council continues, “Indeed, crypto assets to date do not appear to offer investments with any fundamental value, nor do they act as an effective alternative to fiat money, improve financial inclusion, or make payments more efficient. Instead, their innovation has been mostly about creating artificial scarcity in order to support crypto assets’ prices.”
The cost of crypto has created undesired impacts for consumers, the financial system, and even our physical environment.
Despite crypto having their own perks, the authors have wrote their analysis against general “claims” from crypto proponents, which address matters like how crypto can be an investment vehicle, how crypto enables financial freedom, how crypto can bring fast banking, and how crypto can increase financial inclusion and address the needs of the unbanked and underbanked.
A big portion of the authors’ rebuttals are focused on the potential harm that crypto may bring to consumers, and are quick to point out the lack of regulation and enforcement on the industry.
“One of the principal areas where there is mass noncompliance is disclosure surrounding crypto assets that are securities,” the report writes. “This lack of disclosure prevents investors from recognizing that most crypto assets have no fundamental value.”
As the report fails to account for the growing movement in the Web3 space to dispel such bad behaviours and resulting stigma such as regenerative finance, the report instead zeroes in on the opinion that “crypto assets are mostly speculative investment vehicles,” and does not believe that cryptocurrencies can perform the functions of money as efficiently as fiat currencies like the US dollar.
The authors have also taken to describe Web3 in their own terms, and have concluded that a degree of centralisation is inevitable.
While the council is aware that proponents of Web3 believe that blockchain technology can improve performance and will be the ‘backbone’ of a new internet, it warns “once a distributed ecosystem centralises around a platform for convenience, it becomes the worst of both worlds,” as there is centralised control, but then is distributed enough to get murky over time.
Beyond Web3 itself, the report also attacks previous and current attempts on how distributed ledger technology (DLT) has been used, saying that they have “demonstrated only limited, if any, economic benefits so far.”
The report does not include any updates on the US’s ongoing development of a widely accessible central bank digital currency (CBDC), but instead directs to the government’s original policy objectives for a US-issued CBDC from September 2022.
