Secretary of the US Treasury Janet Yellen was by no means a fan of Bitcoin. She literally informed us of this in 2018, then as chairman of the Federal Reserve. This is why crypto followers had trouble not spilling their coffee when they saw Yellen explain how Bitcoin works and that decentralized finance can provide financial inclusion.
Is this a deep fake? was a common reaction on Twitter. How could one of America's top bureaucrats have changed her tune so suddenly? Most likely, the changed attitude has to do with President Biden's recent executive order directing U.S. regulators to finally get to work on crypto regulation. Crypto simply can no longer be dismissed as technology for criminals and must be given a solid place in the regulatory framework. That message has apparently gotten through - at least to the head of Treasury.
'I see the benefits of crypto'
The speech comes after a March 2022 interview with CNBC where the new attitude first became clear. The interviewer asks what her reaction is to the role of crypto, given that Russia is considering accepting Bitcoin as a means of payment. Yellen:
"Crypto [...] is now playing a significant role, not so much in transactions, but in investment decisions of lots of Americans. [...] I have a little bit of scepticism because there are valid concerns around it. [...] On the other hand there are benefits from crypto and we recognize that innovation in the payment system can be a healthy thing. We would like to come out with regulations that will create a regulatory environment in which healthy innovation can occur."
'Blockchain should be allowed'
The crux of Yellen's April 7 speech is that the government's job is not to decide what technology is allowed. It should be purely about protecting consumers.
“Wherever possible, regulation should be tech neutral. Consumers, investors and businesses should be protected from fraud regardless whether assets are stored on a balance sheet or distributed ledger.”
'Satoshi made us less dependent on centralized intermediaries'
In her talk, Yellen takes us through the past few decades of financial innovation. Bitcoin, decentralized finance and stablecoins are also discussed. The bottom line is that America needs to be a place where regulators give room for innovation and ensure that the public remains protected.
It is noteworthy that Yellen talks in the speech about the high cost of the traditional financial system, of which she is obviously one of the representatives. According to her, the system weighs especially heavily on people with lower incomes, migrants and the less developed parts of the world.
She then explains the role of crypto and the core idea of Bitcoin:
"Most recently, new technology has raised the possibility of reduced reliance on centralized intermediaries like banks and credit card companies. In 2008, a person – or group of people – using the pseudonym Satoshi Nakamoto proposed a decentralized peer-to-peer system for making and processing payments."
She continues with a brief explanation of the possibilities of decentralized finance and smart contracts. She points out the potential for more financial inclusion: 'digital assets enable broader access to financial markets.' She also seems quite positive about stablecoins.
In the conclusion of the speech, she praises central bank digital currencies. Clearly, the U.S. is taking steps with its research into a Central Bank-issued digital dollar.
Yellen's speech is a landmark moment in the history of financial regulation in the US. If there still existed any doubt that America would want to ban Bitcoin or crypto, this doubt is now completely gone. It also shows that the U.S. seems to be choosing the role of pioneer in the crypto sector. China has banned Bitcoin and Europe is about to pass stifling regulations. To become - yet again - the frontrunner of an innovative space appears to be an opportunity that the US is not going to pass on.