National Security Risks of Digital Assets

Better Markets filed a comment letter with the Treasury Department regarding the national security risks of digital assets.

Why is this important. The growth and proliferation of digital assets has provided malicious actors with an effective new means to engage in illicit financial activities, such as sanctions evasion, money laundering, terrorist financing, and consumer fraud. These activities using digital assets have increased significantly and rapidly. Additionally, the recent collapse of $2 trillion in crypto assets and crypto carnage has caused massive losses for investors, with bankrupt crypto companies and so-called stablecoins proving that they are in fact not stable coins. However, there has been no systemic instability or taxpayer bailouts as digital assets have largely been kept out of the traditional financial sector and have not grown enough to compete with it. This may not always be the case.

What we said. Increased use of crypto assets by consumers and businesses could undermine the banking system by draining banks of deposit funding and loan demand. Ultimately, if this were to happen, it could reduce the supply of credit to our economy, make that credit more expensive, and increase overall systemic risks. Additionally, the level of risks for crypto-asset companies and businesses is inherently much higher due to the nature and design of crypto-assets, which compounds and complicates the risks.

Bottom line. Allowing innovation and the use of digital assets to continue to flourish without proper controls, laws, and regulations in place would increase the number of such activities and pose a serious threat to national security and the safety of the American public. Above all, this includes risks to the functioning of our financial system and its ability to support the productive economy.