US Treasury Publishes Endless Lists of Crypto Consumer and National Security Risks

The Treasury Department was bullish on crypto in two releases produced in response to the Presidential Executive Order on Digital Asset Development issued in March.

The U.S. Treasury Department released three digital asset-related publications on Friday, in response to U.S. President Joe Biden's Executive Order "Ensure Responsible Development of Digital Assets." One of them focuses specifically on crypto assets, and a shorter action plan aims to tackle illicit financial risks.

The discussion of crypto-assets in "Crypto-Assets: Implications for Consumers, Investors and Businesses" takes on a cynical tone from the start, with the report's introductory paragraphs stating:

“The potential of blockchain technology to transform the delivery of financial services, as embraced by developers and promoters, has yet to materialize.”

About half of the report is a descriptive study of crypto assets, after which the authors turn to the risks they pose to users. It divides risks into three categories, the first of which is behavioral risks, i.e. practices within the ecosystem. The report alleges that losses from cryptocurrency fraud skyrocketed in 2021 and are on track to surpass that record this year. It also identifies transparency issues of various types.

Operational risks, which include "failures in information systems or internal processes, human errors, failures in governance and management, or disruptions due to external events", are taken into account in detail . Intermediation risks of crypto-assets are closely related but discussed separately, which are the same risks that investors face in traditional markets, such as volatility and custody issues, but which form a "single landscape" in due to the nature of crypto.

Potentially the most valuable section of the report is a lengthy discussion of the opportunities and risks that crypto assets present to vulnerable populations. This is especially true because of the detailed statistical information in the section.

The report makes three recommendations: vigilant monitoring, with increased enforcement, inter-agency cooperation and information sharing; that the agencies produce more guidelines and rules, and for...