Cryptocurrency legislation may be one area where warring Republicans and Democrats in a divided Congress may yet find common ground, especially in the wake of the epic fiasco of crypto behemoth FTX.
While the House’s transition to Republican control may block other legislative priorities because of the chamber’s chafes against the Democrat-controlled Senate, both sides may actually agree that crypto is overdue for legislation that provides hedges for the industry and protections for consumers.
This month’s collapse of FTX, a major crypto exchange with a $32 billion valuation before it filed for bankruptcy last week, robbed its users of assets and shook the digital currency world. Although news emerged this month, shortly before the FTX explosion, that regulators were investigating the company, the disclosure may have felt too little, too late in the case.
It’s not a lost cause for the wider industry. Crypto has been going on and on growing in fits and starts for more than a decade. On a parallel track, central banks around the world have adopted digital assets. So, the concept of a persistent blockchain-based currency world seems to have staying power.
Even before FTX’s collapse, Democrats and Republicans on the House Financial Services Committee had come together on basic legislation aimed at creating a regulatory framework for the industry.
Panel chair, Rep. Maxine Waters, D-CA, has negotiated a bipartisan deal with Republicans, led by the committee’s ranking member, Rep. Patrick McHenry, R-NC, who is likely to take his place as chairman.
While crypto industry players need more regulatory clarity, or at least giving words to the idea, politicians seem to have the protection to continue installing new laws to oversee the industry. The devil will be in the details, but FTX should offer some clarity on the areas most in need of more regulation.
In comments last month at a fintech conferenceMcHenry acknowledged Congress’ weakness on the digital asset front.
“The only regulation that exists, in existing laws regarding the movement of digital assets, is a money transmission license issued through the 50 states,” he said. “That doesn’t look like a regulatory regime. It doesn’t look dreamy. It doesn’t look innovative. It actually seems a bit retrograde.”
At the time, before the election results were known, McHenry said the committee would focus next year on defining digital assets and reviewing how to exchange.
In the meantime, he explained how he and leading Democrats, including Waters, have drafted bipartisan legislation that provides a starting point in the rapidly changing digital asset arena. While that may be changing now, his comments last month suggested there is bipartisan fervor on the topic.
“I appreciate the trade-offs that my Democratic colleagues are willing to make so that we can actually have a piece of legislation,” McHenry said.
In response to the FTX drama, at least one House Democrat on the committee, Rep. Stephen Lynch of Massachusetts, seems to still be willing to move forward with crypto legislation.
“The surrounding situation [FTX’s] collapse strongly demonstrates the need to develop thoughtful regulations to protect US investors and preserve market stability in the crypto space,” Lynch said in a statement today. “As Chair of the Financial Technology Task Force, I look forward to reviewing the results of investigations conducted by US and international regulators and I will continue to work with Chairman Waters to examine and address the critical oversight errors that facilitated FTX’s downfall. “
Republicans could advance that dialogue as the newly empowered party seeks to make an impact. Former Sen. Cory Gardner, R-CO, who now has a leadership role at the Crypto Council for Innovation, predicted movement on the crypto front even before the election results arrived.
“The digital future of the US will be front and center in the 118th Congress,” Gardner said in a Nov. 7 emailed statement. “We expect major crypto legislation to move forward.”
Calling it the “Crypto Congress,” Gardner said he hopes the new members dealing with crypto legislation will “drive meaningful economic growth” and ensure “a digital future where the full potential of crypto is realized.”
Gardner, who served in both the Senate and the House, probably knows how difficult that effort can be.
And from his new position, as chief political affairs strategist at a council that supports “inclusive regulation,” Gardner will understand the odds the industry will face in winning congressional consensus. His organization has backing from payments player Block and crypto giant Coinbase, as well as venture capitalist Andreessen Horowitz and financial industry stalwart Fidelity.
“The crypto party is crypto — it’s not blue or red, not Republican or Democrat,” Gardner said in a statement Wednesday. The council’s allies “come from both sides of the aisle.”
Despite what seems like chronic gridlock in Washington today, perhaps crypto is one area where it will be profitable for both sides to claim a legislative victory.