The United States House of Representatives finally elected a speaker last week, concluding a four-day, 15-ballot ordeal that left many wondering if political gridlock was now the new normal in the U.S., and if so, what the consequences would be.
For example, were the concessions made by Republican Kevin McCarthy to secure his election as speaker ultimately going to make it difficult to achieve any sort of legislative consensus, making it impossible for the U.S. to raise its debt ceiling and fund the government later this year? Not all were optimistic.
The House of Representatives will be largely “ungovernable” in 2023, Representative Ritchie Torres, a Democrat from New York, told Cointelegraph on Jan. 6, shortly before joining colleagues for that day’s series of ballots — which finally ended after midnight with resolution. “The 117th Congress was one of the most productive legislative sessions ever,” Torres noted, “but the 118th will be one of the least productive.”
It’s worth asking amid this latest brouhaha in the world’s largest economy what it all means for digital assets and blockchain technology. Does it suggest that one shouldn’t expect any meaningful crypto legislation from Congress in 2023?
A bipartisan coalition exists
Not necessarily. “On the surface, at least,” a bipartisan coalition exists in the House to pass crypto legislation, said Torres, who sits on the House Committee for Financial Services and who himself introduced crypto legislation in December in response to the FTX collapse.
Crypto reform has been urged on and off by both Democrats and Republicans in the House and Senate recently, after all. Indeed, analytics firm Chainalysis recently highlighted some 20 bills before Congress that could affect cryptocurrencies and stablecoins. The House Committee on Financial Services alone has a pro-crypto incoming chairman, Republican Patrick McHenry, along with crypto-friendly Democrats like Torres and Maxine Waters.
But “deeper down,” Torres sees cross-currents that could disrupt legislation: The political far right could thwart any crypto initiatives as a matter of principle — they oppose all regulation — while the far left may also want to keep digital assets unregulated in order to delegitimize and ultimately kill them. Crypto legislation, in the eyes of this group, would be equivalent to acceptance of the emerging industry.
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Torres, for his part, believes that legislative action is critical. “Congress has an obligation to intervene,” he told Cointelegraph, as digital assets are too volatile to remain unregulated. SEC Chair Gary Gensler’s two-year efforts to bring cryptocurrencies and stablecoins under federal oversight through regulatory action alone haven’t succeeded, he said. It’s become clear, especially in light of the FTX fiasco, that more durable legislative solutions are required.
Nor does Torres believe that recent events will delay or sink the House’s scheduled FTX-related fraud hearings. For one thing, it’s just easier to hold hearings than it is to pass legislation, he noted.
“We are optimistic”
To the larger legislative question, though, maybe Torres is too pessimistic. The Crypto Council for Innovation, which advocates for a federal regulatory framework to provide clarity for all market participants, remains hopeful. “We are optimistic that given broad bipartisan support by lawmakers, a comprehensive bill could make it to the president’s desk this Congress,” Brett Quick, the council’s head of government affairs, told Cointelegraph.
There will be challenges, of course. The “razor-thin” nature of the Republican majority and the continued demands of the House Freedom Caucus members, who held up the speaker election process for a week, won’t make things easy. But “crypto may be one of the few areas where there is enough broad bipartisan support from all points on the political spectrum that moving legislation this Congress is a reasonable expectation,” added Quick.
Clark Flynt-Barr, senior policy adviser at Chainalysis, like Torres and Quick, applauds the bipartisan collaboration that has emerged around crypto in the past year. She cited the House’s Waters-McHenry stablecoin bill alongside the U.S. Senate’s bipartisan Lummis-Gillibrand Responsible Financial Innovation Act. Flynt-Barr expects this sort of cooperation to increase, especially in light of recent industry events like the FTX collapse, telling Cointelegraph:
“Crises and scandals — and now fraud — often give more momentum to reforms and regulations that might not otherwise be the top priority.”
Care must be taken, though. Not any sort of lawmaking will do. It’s important that Congress takes the time to really learn about cryptocurrencies and blockchain technology. Otherwise, “reactive policies that do not take into consideration the unique aspects of the industry could have disastrous impacts and push this innovation abroad,” Flynt-Barr warned.
Is the best action no action?
Along these lines, would a moratorium on crypto or stablecoin legislation in the United States in 2023 really be so bad? Sometimes the status quo is better than precipitous action, no?
“The U.S. crypto industry is stuck in limbo without regulatory clarity,” warned Susan Friedman, head of policy at Ripple. “This current regulatory limbo is pushing consumers to offshore platforms that operate with no U.S. oversight.” The U.S. could lose its competitive position in crypto innovation and development if it does nothing, she told Cointelegraph.
“Continued inaction is simply not an option,” Abegail Cave, press secretary for U.S. Senator Cynthia Lummis — co-sponsor of the Responsible Financial Innovation Act — told Cointelegraph. Asked about the recent House impasse, she added:
“Senator Lummis does not believe this will impact the outlook for digital asset legislation in the 118th Congress. Over the last year, a strong appetite for digital asset regulation has developed from members of Congress on both sides of the aisle.”
New laws will be needed both to protect consumers and to allow the crypto industry to continue to innovate, in the view of the senator, whose proposed legislation aims “to bring digital assets within the regulatory perimeter.”
But others say that regulation by non-legislative means can also work. “The administration can use its rulemaking authorities to issue new rules, and agencies can issue new guidance in the absence of legislation,” Flynt-Barr told Cointelegraph. Indeed, the Biden administration’s recent Unified Regulatory Agenda and Regulatory Plan, which reports on the actions administrative agencies plan to issue in the near and long term, contains several rules “that may impact crypto,” she noted.
What’s the best Congress can do this year?
What would be a satisfactory outcome with regard to crypto in the 118th Congress under current circumstances?
Torres insists on safeguards to ensure that consumer funds deposited in cryptocurrency exchanges are genuinely secure. One of his bills, for instance, forbids brokerages to lend, leverage or commingle funds without a customer’s permission. A second requires cryptocurrency exchanges to regularly report their reserves to the SEC — not just assets but liabilities also. FTX reported assets of $900 million shortly before it collapsed, but it also reportedly held $9 billion in liabilities — surely a red flag had it been known. The FTX fiasco was preventable, in Torres’ view, and laws are needed to ensure that it doesn’t happen again.
For Flynt-Barr, a positive outcome would be the “development of legislative policies that are founded in ground truths, are data-driven rather than reactionary, and reflect the unique aspects of the industry and do not impose unworkable requirements on it.”
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The U.S. has been a leader in financial regulation for decades, she continued. The Financial Crimes Enforcement Network, a bureau within the Treasury Department, was one of the world’s first agencies to provide guidance on crypto-related Anti-Money Laundering laws back in 2013 “when Bitcoin was worth something like $130 and Ethereum hadn’t even been created,” Flynt-Barr noted. “I hope that the U.S. continues to lead in crypto regulation and that we do so in a way that encourages the industry to grow responsibly here in the U.S., which will be crucial to our economy and our national security.”
Ripple’s Friedman, too, remained hopeful that 2023 “is the year common sense crypto policy breaks through,” adding:
“We now have leaders on both sides of the aisle in both parts of Congress championing legislative solutions, and the dialogue around crypto is much more sophisticated than it was two years ago.”