If familiarity breeds contempt, the crypto industry should strap on a hard hat in these opening days of the 118th US Congress, as lawmakers know the digital asset industry much better than before.
The shine of bitcoin is off, and those pre-partisan days of educational hands-on by industry boosters have been strangled by current events. In a potentially momentous session in which US lawmakers could shape the way virtual assets are used around the world, crypto dramas will eclipse all of that, starting with hearings focused on FTX mayhem.
Before FTX’s Sam Bankman-Fried was charged with an epic fraud that two of his former lieutenants said he orchestrated, he was Washington’s favorite proxy in the crypto world. As one of the industry’s top ambassadors on Capitol Hill, the approachable CEO has spent an inordinate amount of time with lawmakers, so his unmasking as an alleged villain is all the more damaging to the industry.
This piece is part of CoinDesk’s “Policy Week”.
Not only that, he and other top FTX officials have been a shocking source of campaign finance over the past cycle, giving directly to no less than one in three members of Congress, a recent analysis by CoinDesk has shown this (and indirectly to many others). Now it’s up to those 196 senators and representatives to explain what they did with the contributions of Bankman-Fried and others.
In the room where it’s happening (to borrow Hamilton’s earworm) there is a stench of crypto misdeeds. And the industry won’t have to wait long to get a first idea of where it stands in Washington today.
“It’s going to happen a lot sooner than people think,” said Ron Hammond, director of government relations at the Blockchain Association, who expects relevant committees to revert to the FTX debacle in the coming weeks. “They’re ready to hit the ground running.” Cryptography is among the topics receiving the most immediate attention in the House Financial Services Committee and the Senate Banking Committee. The industry is finally getting the priority status it desperately wanted, but for the wrong reasons.
Headline – aware lawmakers – many of whom have received these FTX dollars – will be receiving early messages before the legislation begins in earnest. And the party divide will become sharper, dulling the visible joy the industry once felt how non-partisan the work was.
The New Republican Line: Blame Humans for Crypto Missteps. Don’t blame the innovative technology!
From Democrats: Crypto is an untamed beast that steals people’s savings and seems useless.
“FTX’s collapse definitely impacts how people in Congress think about this,” Rep. Jim Himes (D-Conn.) said. said CoinDesk TV earlier this month.
US lawmakers have so far failed to produce any significant legislation to establish crypto oversight, despite a number of failed legislative efforts. To change that in this newly divided Congress, Republicans will have to recognize that their majority in the House is wafer-thin, and they’ll need a cross-party partnership to get anything moving over the next two years.
“Nothing’s going to happen unless it’s bipartisan,” said Parker Hamilton Poling, former executive director of the Republican National Committee in Congress who was once the representative’s chief of staff. Patrick McHenry (RN.C.), the new chairman of the House Financial Services Committee.
“Nothing stimulates legislation like a crisis”
McHenry is “very keen to engage” with Democrats on crypto issues, and Poling — now a partner at Harbinger Strategies — said the congressman will have to find common ground with the chairman of the Senate Banking Committee. , Sherrod Brown (D-Ohio), because all the legislation “is going to take effort on both sides.”
Brown caused a stir late last year with remarks that put him in the crypto-suspicious category, although he also write a letter to US Treasury Secretary Janet Yellen saying he was serious about sitting down to find a whole-of-government approach to regulating the sector.
Sheila Warren, CEO of the Crypto Council for Innovation, thinks it will be the “crypto Congress” as the need for industry oversight “hits the trio of interest, understanding, and urgency with lawmakers,” said- she declared. “Crypto will become an inescapable issue for members of Congress, and when it comes to crypto policy, there is something for everyone.”
Possibility of Stablecoin invoice
The biggest legislative advancements so far have been the oversight of stablecoins such as Tether’s USDT and Circle Internet Financial’s USDC, which are pegged to assets like the dollar as a means of keeping their value stable. . Regulators universally agree that these tokens, the cornerstone of crypto trading and decentralized contracts, need flawless reservations and disclosures to avoid threatening the broader financial system.
Lawmakers from both parties also agree, and they were ironing out the final details of a House bill when time ran out last year.
“The stablecoin effort is still alive and well,” Poling said. “They were very close, and they could get it back.”
Because that job was “almost to the finish line,” Himes, a House committee member who worked on it last year, predicts Congress will be able to do it.
“Where we really have some momentum is on the issue of stablecoins, and maybe that’s the starting point, with tens of billions of dollars of stablecoins being traded every day,” he said. declared.
Hammond warned that the industry shouldn’t expect this to happen at lightning speed. He said he would look for it in the latter part of 2023.
Where we really have some momentum is on the issue of stablecoins
Crypto lobbyists are pinning high hopes on McHenry’s fledgling crypto subcommittee and its leader, Rep. French Hill (R-Ark.), who is considered a good negotiator with a deep understanding of finance.
The Senate and House Agriculture Committees have also attempted to propose bills, often focused on granting the Commodity Futures Trading Commission (CFTC) new powers to regulate crypto, including the autism market. counting crypto-commodities such as bitcoins.
A fundamental question still hangs over the industry: what makes a crypto token a security or a commodity? The congressional response would likely require a bill that cuts across the finance and agriculture committees in both houses and calls for many different lawmakers to come together.
Some previous bills have attempted to address the issue, such as a sweeping bipartisan proposal last year from Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (DN.Y.) While a talking point — as intended — her ideas remain theoretical, and no lawmaker has the clout to say it. even go through one of the many committees that would. need to approve it.
On this point, the Digital Products Consumer Protection Act of the heads of the Senate Agriculture Committee, enjoys a greater advantage, but it has not taken off. One of the bill’s most prominent champions was Bankman-Fried, now sitting in his parents’ Palo Alto home wearing an ankle monitor. His aggressive lobbying on his behalf may have left a dark mark on the effort. And decentralized finance (DeFi) advocates feared an early version of the bill would trample their business model, though that language seemed fluid late last year, and the bill’s authors said that they always intended to get the effort in the senate.
Old legislation is expected to be reintroduced in this new session, and the recent consensus among lawmakers and regulators is that FTX warrants a rethink of how Congress approached the industry. Whatever the scope of the negotiations, they will have to remove the bottleneck from Brown’s Senate Banking Committee, which Hammond said “will be the bottleneck for most things.”
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And the burning issue of crypto – security or commodity – remains “sort of in a steam lock,” Himes said, with Securities and Exchange Commission (SEC) Chairman Gary Gensler stalling the debate with his assertion that his agency already has all the authority he needs to bring the industry online and he just needs to keep punishing companies to comply. Lawmakers must decide whether he is right or whether new powers should be allowed, Himes said.
Despite crypto’s reputational mess, the industry’s current self-inflicted crisis may have a silver lining: major financial legislation tends to rise from smoldering ruins. In the vein of Enron (which led to new accounting laws) and the housing crash of 2008 (which spurred the Dodd-Frank Act of 2010), Bankman-Fried’s unintended legacy could be legislative.
“Nothing spurs legislation like a crisis,” Hammond said. “FTX could be the straw that breaks the camel’s back.”