President's Economic Report Critiques Crypto Assets

In the digital assets section of the 2023 Economic Report of the President, the Council of Economic Advisers examined risks associated with crypto assets. The report also described benefits of certain innovations, including DLT and the development of a possible U.S. CBDC.

The Council’s report reviewed the current state of the crypto assets market, stating that the market value fell from a peak of around $3 trillion in November 2021 to under $1 trillion in December 2022. This, the report concluded, was significantly due to "failures of certain prominent crypto asset projects and firms." The Council outlined claims around the "purported benefits" of crypto assets, but countered that, among other things, such assets:

• have no underlying physical assets of value and are extremely risky speculative investment vehicles;
• are subject to "run risk";
• allow high levels of fraudulent activity that harms investors due to the lack of disclosures by crypto asset companies;
• are susceptible to multiple types of currently unregulated misconduct; and
• have no stable intrinsic value, may not be used in all the ways the U.S. dollar can for goods and services, and have significant costs.

The Council acknowledged that (i) DLT solves the problem of two parties that "do not have a reason to trust each other can nonetheless transact securely" and (ii) technological advancements assist not only crypto assets, but also the efforts of the current regulated financial system, demonstrated in ways such as the Federal Reserve's upcoming FedNow service (which the report said will expedite trading, reduce fees and generate savings). The Council also recognized potential benefits of a U.S. CBDC (i.e., a digital U.S. dollar), including, among other things, enabling a more efficient payment system and faster cross-border transactions.

The Council concluded that while innovations in the financial services sector brings both risks and opportunities for the overall economy, they "cannot challenge basic economic principles, such as what makes an asset effective as money and the incentives that give rise to run risk." Further, the Council stated that although the underlying technologies are a "clever solution" to the problem of executing transactions without a trusted authority, crypto assets "do not offer widespread economic benefits."