The White House today released a hefty 513-page annual document, in which the crypto industry was harshly criticized for displaying a lack of basic economic principles.
The first reference to digital assets in the 2023 Economic Report of the President, which was published by the Council Of Economic Advisers, states that “blockchain technology has enabled the emergence of financially innovative digital assets that have proved to be highly volatile and susceptible to fraud.”
The comment was included on page 43 of the report.
“Even though supporters usually claim that digital assets, particularly crypto assets, are a revolutionary innovation, the design of these assets often reflects ignorance of basic principles of economics and finance that have been understood for centuries,” The report continues five pages later. “This inadequate design is often damaging to customers and investors.”
“Taxonomy of Digital Assets and Central Bank Money,” Figure 8-1.
The full report—which has more than 100 pages of appendices—takes a look at the U.S. economy, including the rise of women in the labor force, climate change, imported goods, foreign investment, and education. However, a large number of sections are devoted to technology and digital markets.
Chapter 7 is titled “Competition in the Digital Economy: New Technologies, Old Economics,” while Chapter 8 tackles crypto head-on under the heading “Digital Assets: Relearning Economic Principles.”
The conclusion? Crypto advocates should go back to school, as they are “learning the lessons from previous financial crises the hard way.”
“In addition to the decentralized custody and control of funds, it has been argued that crypto assets may offer other advantages, 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 provided none of these advantages.”
The financial system and consumers have been adversely impacted by crypto’s high costs.
“It is evident that crypto assets to date have not provided investments with any real value, nor have they served as an efficient substitute for fiat money, improve financial inclusion, or make payments more efficient,” The authors wrote. “Rather, their innovation has been mainly about creating artificial scarcity in order to support crypto assets’ prices.”
“Many of them have no real value,” They added.
The authors then move on to a variety of “claims” Crypto proponents believe that crypto assets can act as money and facilitate digital payments. This will increase financial inclusion and reduce the number of the underbanked or unbanked.
The report then provides a comprehensive list of refutations, which focuses on the potential harm to consumers as well as the lack of regulation and enforcement.
“One of the main areas where there is massive non-compliance is disclosure regarding crypto assets that are securities,” The report states. “This lack of disclosure prevents investors from understanding that most crypto assets have no real value.”
The council is even willing to take a step back and attempt to explain Web3.
“Supporters of blockchain technology state that it will not only improve companies’ performance but also be the backbone of an entirely new Internet—Web3, the so-called new Internet,” They wrote.
The section concludes by citing Signal App founder and cryptographer Moxie Marlinspike and stating that some centralization of power is inevitable.
“Once a distributed system concentrates around a platform for convenience, it becomes the worst of both worlds,” The report provides more information. “Centralized control, but still distributed enough to become mired in time.”