To see how difficult it will be for Congress to pass a major bill to regulate cryptocurrencies next year, look no further than how hard it’s been for lawmakers to pick off the low-hanging fruit that most of them agree on.
On Tuesday, lawmakers released the text of the so-called Omnibus spending bill. Such bills are considered must-pass legislation to continue funding the government and are often used as vehicles to address myriad policy issues without the usual drawn-out debates on separate bills that take up precious time on the Congressional calendar.
As late as last week, some lawmakers hoped the Omnibus could address widely agreed-upon crypto policy issues. For example, retiring Sen. Patrick Toomey (R., Pa.) told Fortune he thought it was possible provisions could be added to the bill to exempt “de minimis” crypto transactions from tax-reporting requirements and to clarify which companies needed to report customer crypto transactions—both issues that have had bipartisan support.
However when the Omnibus was unveiled, neither provision—nor any crypto provision for that matter—made the cut.
That’s a bad omen for token investors and for crypto companies such as
(ticker: COIN) that are lobbying Congress to pass a bill next year to clarify crypto regulations in the wake of the collapse of Bahamas-based FTX.
Some experts have said that a crypto-regulatory bill could lead to soaring token prices by providing clarity to traditional financial institutions currently afraid to dip into the market for fear of crossing regulators. A bill could also protect crypto companies, by limiting the jurisdiction of agencies like the Securities and Exchange Commission that have pursued them for large fines.
Coinbase CEO Brian Armstrong on Monday published a blog post outlining what he believes Congress should do. Among his ideas is for Congress to require the Commodity Futures Trading Commission and the SEC to publish a list of the top 100 tokens by market capitalization, along with whether the agencies believe each token is a commodity, a security, or something else. Such a designation could allow trading platforms to prohibit crypto securities and avoid having to register with the SEC, which some crypto executives say is a costly and complicated process.
Major financial institutions have largely held off from buying tokens or taking major strides into the crypto market in part because they say it’s unclear what laws they fall under. Crypto proponents have hoped that legislation could provide confidence, bringing billions of dollars in new capital into the industry, and giving tokens the lift they need to become part of mainstream finance.
But thus far, it appears a significant contingent of Democratic lawmakers is leaning toward eschewing major legislation in the short term, and instead pressing the SEC to go after crypto companies under existing regulation.
In a Sunday interview on NBC’s Meet The Press, Senate Banking Committee Chair Sherrod Brown (D., Ohio) floated the idea of a U.S. crypto ban, acknowledging that a crypto-regulatory bill could serve to “legitimize” the industry. Any proposed ban has little chance of becoming law.
More significant, Brown noted he’s encouraged the Treasury Department to coordinate a response by regulatory agencies such as the SEC and CFTC to the FTX implosion. He said that the administration could also help work on legislation “if it comes to that.”
To be sure, some lawmakers say they plan to try to introduce bills on certain crypto issues. North Carolina Republican Patrick McHenry, who’s expected to lead the House Financial Services Committee next year, and Maxine Waters (D., Calif.) this year drafted legislation to regulate “stablecoins,” whose value is pegged to the dollar. Some version of that legislation is expected to be introduced in 2023. Prominent lawmakers in that committee have also said a broader crypto bill is necessary.
But some crypto critics have argued major legislation is unnecessary or even counterproductive.
“Legitimizing it is simply going to drain creative resources from productive activities,” said Brandeis Professor Stephen Cecchetti in a Tuesday debate hosted by the Brookings Institution titled “Should crypto be regulated by the federal government?”
Similarly SEC Chair Gary Gensler has repeatedly argued his agency already has ample authority to oversee the industry under existing law
Two months ago, the debate between contingents of Democratic lawmakers was how to strike the balance between protecting consumers from harm and fostering the crypto industry in the U.S.
FTX’s collapse has shifted the Overton window. Now, the choices seem to be whether to crack down on crypto or to use legislation to crack down even harder. Crypto investors should be wary.
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