Investigative Report: HUD Considers Using Cryptocurrency

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The U.S. Department of Housing and Urban Development (HUD) is contemplating a significant move: using cryptocurrency. According to a meeting recording and materials reviewed by ProPublica, as well as accounts from three officials familiar with the matter, HUD is considering taking a first step towards incorporating blockchain technology and possibly cryptocurrency into its operations. Two officials believe this initiative may be a trial run for the use of crypto across the federal government.

Concerns Over Unregulated Digital Assets

The discussions have sparked concern among some HUD officials, particularly regarding the prospect of paying recipients of major federal grants in cryptocurrency. Cryptocurrency is an uninsured digital asset associated with financial speculation, dramatic value swings, and transnational crime. The focus of the discussions so far has been on experimenting with using blockchain technology to monitor HUD grants. While blockchain advocates argue that the technology is valuable for such purposes, experts note that its primary use is for crypto transactions.

One HUD staffer expressed concern, stating, "It’s just introducing another unregulated security into the housing market as though 2008, 2009 didn’t happen. I don’t see any way this will help anything. I see a lot of ways this could hurt." The staffer, who spoke on the condition of anonymity, was referring to the subprime mortgage crisis. The HUD discussions have also covered the potential use of a stablecoin, a form of crypto pegged to another asset to avoid wild value swings, although such swings have occurred in the past.

Pushing the Blockchain Idea

The blockchain idea is being promoted by Irving Dennis, the agency’s new principal deputy chief financial officer and a former partner at the global consulting giant EY (Ernst & Young). EY itself is involved in the proposal, with an executive discussing the idea with HUD officials last month. President Donald Trump’s administration has also been supportive of the crypto industry, tapping industry boosters to lead federal agencies, backing off investigations into crypto firms, and creating a "strategic Bitcoin reserve." Trump himself has significant financial interests in crypto, and the White House is scheduled to host a "crypto summit" with industry leaders.

A New Way to Bolster the Industry

The proposal at HUD indicates a new way the administration may seek to support the crypto industry: by incorporating blockchain and possibly cryptocurrency into federal agencies’ routine spending and accounting practices. This move aligns with Trump adviser Elon Musk’s apparent desire to use blockchain to monitor federal spending. However, HUD spokesperson Kasey Lovett and Dennis denied the accounts of their colleagues, stating, "The department has no plans for blockchain or stablecoin."

Criticism from Experts

Robert Judson, the EY executive involved in the conversations, confirmed that the discussions took place. However, he did not provide further comment. The White House, EY, and Musk did not respond to requests for comment. Crypto experts, including Corey Frayer, a former official at the U.S. Securities and Exchange Commission, have expressed skepticism about the proposal, warning that it could introduce volatility and unpredictability into the funding stream. Frayer stated, "It’s a terrible idea… It is absolutely wild that anyone with any sense would consider this."

Potential Consequences

The proposal’s potential consequences are significant, particularly if it expands to other parts of the agency, such as the $1.3 trillion in mortgage insurance provided by the Federal Housing Administration. A fluctuation in the value of the stablecoin could have a major economic impact, with Frayer warning, "Imagine a world in which all of the government involvement in the housing industry, all of the funds circulating in that environment, dropped in value by 13%." Hilary Allen, a law professor at American University, noted that high-profile attempts to use blockchain for purposes unrelated to cryptocurrency have failed, and she expressed skepticism that the technology would fare better in the context of government grants.

The use of blockchain technology in government grants could have far-reaching consequences, particularly for those who depend on HUD funding to survive. As Allen stated, "Blockchain technology has been around for 15 years. No one wants to use it. And so now we have an attempt to force the government to use it," with "the most vulnerable people" serving "as guinea pigs."