Executive Order on Digital Assets

“Digital assets, including cryptocurrencies, have seen explosive growth in recent years, surpassing a $3 trillion market cap last November and up from $14 billion just five years prior. Surveys suggest that around 16 percent of adult Americans — approximately 40 million people — have invested in, traded, or used cryptocurrencies.” — White House Fact Sheet.

The rapid rise of the digital-asset marketplace has led one recent commentator to argue forcefully for the U.S. to develop a “cogent and comprehensive approach to managing crypto assets” in bankruptcy proceedings. [1] On March 9, 2022, President Biden issued an “Executive Order on Ensuring Responsible Development of Digital Assets” (available here). The Order seeks to promote the development of a comprehensive national digital asset strategy. Although the Order does not by itself directly impact the treatment of digital assets in bankruptcy, insolvency professionals should be familiar with the basic framework of the Order.

The Order identifies six key priorities for the federal government:

consumer and investor protection

• The Order directs the Department of the Treasury and other agencies to assess and develop policy recommendations in light of the growth of digital assets.
• The Order seeks to have regulators consider potential systemic financial risks posed by digital assets and provide sufficient oversight.

financial stability

• The Order encourages the Financial Stability Oversight Council to identify and mitigate systemic financial risks posed by digital assets and to develop appropriate policy recommendations.

illicit finance

• The Order directs coordinated actions across all relevant U.S. government agencies to mitigate the risks of digital assets being used for illicit purposes.
• The Order also directs agencies to work with U.S. allies and partners in fostering international frameworks, capabilities and partnerships responsive to risks.

U.S. leadership in the global financial system and economic competitiveness

• The Order directs the Department of Commerce to work to develop a framework to drive U.S. competitiveness and leadership in the leveraging of digital asset technologies.

financial inclusion

• The Order directs the Secretary of the Treasury to study and report on the future of money and payment systems with a focus on how technological innovation may impact economic growth, financial growth and inclusion, and national security.

responsible innovation

• The Order directs the U.S. government to study and support technological advances in the responsible development, design and implementation of digital asset systems while prioritizing privacy, security and other factors.
• The Order contemplates the consideration of a U.S. Central Bank Digital Currency (CBDC), including an assessment of technological infrastructure and capacity needs consistent with U.S. priorities and democratic values.

A host of reports are required to be delivered pursuant to the Order — some as soon as within six months (Sept. 5, 2022). Thus, although the Order does not itself explicitly reference either “bankruptcy” or “insolvency,” such topics may emerge, at least to some extent, as part of the implementation of the Order. At the very least, given the forward trajectory on the specific issues addressed by the Order, the insolvency community should track developments and consider developing proposals that synthesize bankruptcy principles with this burgeoning asset class.

In the meanwhile, ABI members interested in the issues at the intersection of digital assets and distress can access excellent materials recently presented at the Caribbean Insolvency Symposium, held Feb. 7-9, from a session titled, “Cryptocurrency Management Strategies in Bankruptcy.” The panel was moderated by Alan R. Rosenberg (Markowitz Ringel Trusty & Hartog, P.A.; Miami) and consisted of James S. Feltman (Kroll, LLC; Miami), Brad M. Kahn (Akin Gump Strauss Hauer & Feld LLP; New York) and Kevin Madura (AlixPartners, LLP; Washington, D.C.). The materials are available on ABI’s website here.