President Biden signed an executive order on March 9 to establish what’s being touted as the first-ever comprehensive federal digital assets strategy for the United States—and the burgeoning crypto community was largely pleased. But “Shark Tank’s” Kevin O’Leary, a decentralized finance (DeFi) supporter and cryptocurrency investor raised a big red flag.
“There's a landmine in that executive order and it's around climate and it's subtle, but it's got huge problems for the bitcoin mining industry,” O’Leary told Advisors Magazine on a phone call.
The blockchain mining of cryptocurrencies is computationally intensive requiring considerable amounts of electricity and data storage capacity. The executive order, in laying out objectives notes that, “The United States has an interest in ensuring that digital asset technologies and the digital payments ecosystem are developed, designed, and implemented in a responsible manner that… reduces negative climate impacts and environmental pollution, as may result from some cryptocurrency mining.”
O’Leary explained that institutions and sovereign funds are not allowed to own bitcoin. Instead, what they've done over the last few years is to get a proxy by owning public shares of public bitcoin mining companies.
“This was working great until two things happened,” O’Leary said. “This ESG [Environmental, Social, Governance] mandate that came out of Blackrock, and this executive order—because it's now linking climate to the mandates of these companies.”
These companies had been buying carbon credits as an offset so they could claim that they were carbon neutral, according to O’Leary, but now such a practice won’t survive an audit. And what this means, he emphasized, is that institutions will never fund a company with carbon credits in its model—the preference would be for a public company that only uses hydropower.
“There's no difference here than what's going on in the oil industry,” O’Leary said. “They're starving off capital with this policy. It may be intentional—I'm sure it is, but this not good because we want to be competitive with data centers. Data's the new oil; we want to build data centers all around the world.”
He pointed to the recent example of a data center project in upstate New York that was underway near Niagara Falls, which would have been 100 percent hydropower. But he said New York state’s policy was unstable and the sovereign fund that was backing the project decided to move it to Norway. “So, it’s now being built there and will be one of the largest data centers in the world—and a hundred percent auditable because there's no carbon at all.”
While O’Leary has met with legislators on Capitol Hill and thinks it’s great that the private sector is being engaged, his biggest concern is that money is being scared out of the United States. “And we’ve got to solve this. We have to be competitive. That’s the whole point,” he said.
Not surprisingly, Biden Administration officials counter that the order is indeed rooted in solidifying U.S. competitiveness. And they maintain that the overall strategy is likely to adapt as the crypto ecosystem evolves.
The executive order “will help position the U.S. to keep playing a leading role in the innovation and governance of the digital assets ecosystem at home and abroad, in a way that protects consumers, is consistent with our democratic values and advances U.S. global competitiveness,” said National Economic Council Director Brian Deese and National Security Advisor Jake Sullivan in a joint statement.
“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,” Deese and Sullivan noted. “We are clear-eyed that ‘financial innovation’ of the past has too often not benefited working families, while exacerbating inequality and increasing systemic financial risk. This history underscores the need to build robust consumer and economic protections into digital asset development.”
If there was any doubt about cryptocurrencies now being part of the country’s economic landscape, the executive order puts that to rest.
“We remain committed to working with allies, partners, and the broader digital asset community to shape the future of digital asset systems in a manner that is safe, inclusive, and consistent with our democratic values. As this ecosystem evolves, so too will our approach,” Deese and Sullivan emphasized.
Crypto has arrived
“Biden’s executive order is a positive development for the crypto industry and shows that the federal government views crypto as an important part of the economy,” Ben Samaroo, CEO at WonderFi Technologies Inc., told Advisors Magazine in an email. “Lack of clarity on this point has kept many people and institutions out of crypto, and this direction will help to address those concerns and allow crypto to take the next steps towards mainstream adoption,” he added.
WonderFi is a leading tech company with the mission of creating better access to digital assets through compliant centralized and decentralized platforms—and in which O’Leary is an investor.
“The White House’s directive to coordinate oversight is further proof that the crypto ecosystem is now a vital and inseparable part of the national economy,” said the Washington-based Blockchain Association in a statement. “The Blockchain Association and its member companies stand ready to assist the Administration with its efforts to study pragmatic and timely oversight to our industry, and we are eager to collaborate.”
The Blockchain Association describes its group as the unified voice of the cryptocurrency industry. Members include the sector’s leading investors, companies, projects, and protocols. The mission is to work together to support a future-forward, pro-innovation national policy and regulatory framework for the crypto economy.
“The crypto industry is a fundamental pillar of the U.S. economy, and the Blockchain Association has long called for a clear, unambiguous, and pro-innovation approach to federal policy for the growing crypto industry,” the statement noted.
The Electronic Transactions Association (ETA) also applauded the White House order.
"We commend President Biden for releasing this Executive Order and are strongly encouraged that it reflects principles that are consistent with ETA's own," said Jodie Kelley, CEO of ETA. "ETA members lead the payments and crypto space, and we look forward to continuing to work with policymakers as guidelines begin to take shape."
As payments experts, ETA says it has long advocated for a policy approach to crypto assets and a U.S. central bank digital currency that considers both potential benefits and negative consequences, and includes an appropriate regulatory framework that is tailored to risk.
