Regulation
Bipartisan support for cryptocurrency is resurgent in Congress. Here because
Cryptocurrency is having a big moment in Washington D.C. The Senate voted last week to overturn an SEC rule, Personnel Accounting Bulletin 121 (SAB-121), which had imposed onerous accounting standards on cryptocurrency assets held by financial institutions. The Senate vote followed the House’s approval of the same pro-crypto measure.
This week, the House will review financial innovation and technology for the 21st Century Act (FIT21), a bill that would establish a long-awaited U.S. regulatory regime for the cryptocurrency industry. And as of Monday, the U.S. Securities and Exchange Commission (SEC) appears to be leaning toward approving Exchange Traded Funds (ETFs) for the spot market of a type of cryptocurrency known as Ethereum. If approved, it would be the second type of crypto ETF authorized by the SEC. The tide is changing.
President Biden has said he will veto congressional action to reverse SAB-121. We hope he listens to lawmakers in his own party, including Senate Majority Leader Chuck Schumer and Corey Booker of New Jersey, who were among those who voted 60-38 to repeal the SEC rule.
At the same time, the approval of the spot ether ETF would represent another giant step forward for the cryptocurrency industry on its inevitable path towards large-scale mainstream adoption. In January, SEC-approved ETFs pegged to the Bitcoin spot market began trading.
The cryptocurrency industry requires clarity
Cryptocurrencies earned a bad name with the spectacular implosion of Sam Bankman-Fried’s fraudulent FTX empire, followed by the jailing of Changpeng “CZ” Zhao, the former CEO of Binance, the largest global cryptocurrency exchange.
This stigma masked all the potential positive benefits of the blockchain technology on which cryptocurrency is based. More than 50 million Americans now hold cryptocurrencies. And the variety of Bitcoin-pegged exchange-traded funds that have sprung up this year have attracted Inflows of $12 billion in May—one of the most successful ETF launches in history. No wonder Congress took notice.
The congressional repeal attempt was aimed at the SEC’s Staff Accounting Bulletin 121 (SAB-121), adopted in 2022. The rule required financial institutions holding crypto accounts to treat them as liabilities, which made custody of digital assets simply uneconomical . A recent analysis The bipartisan Congressional Research Service noted that the rules “represent a change from traditional custodial practices, could limit the involvement of some institutions, and could introduce new costs or risks.”
Fundamentally, blockchain technology is here to stay, remains bipartisan, and is building momentum towards mainstream adoption as the country focuses on the November elections.
While the agencies could have reduced ambiguity by working together to clearly and precisely define the boundaries of their respective jurisdictions, they refused to do so. Instead, they have undertaken “regulation through enforcement” campaigns to assert their authority over the asset class and to suppress its adoption and growth.
This approach has proven expensive and expensive for recipients, although recent court rulings are giving the cryptocurrency industry some of the clarity it was seeking. While this is not the preferred policy path, the checks and balances work and this is unlocking pent-up demand for clearly regulated crypto products.
Emerging bipartisan support
As the November US elections approach, a sharply divided electorate has found common ground in support for blockchain technology. For progressives, blockchain-based finance eliminates gatekeepers. Makes finance more accessible and inclusive at a time when cryptocurrency crackdowns alienate communities of color who have it hugged the asset class. Among conservatives, excessive agency intervention violates basic principles of free markets and more limited government.
Regardless, leadership in innovation and technology remains a shared American value. Indeed, 20% of voters Some major battleground states have identified cryptocurrencies as one of the top issues of the 2024 election season, according to a recent survey conducted by Digital Currency Group. As seen recently by the success of pro-crypto candidates primariescandidates who choose to fight cryptocurrencies do so at their own risk.
In a final act of desperation, anti-cryptocurrency crusaders have sought to gain bipartisan support by suggesting that cryptocurrencies harm national security. But cryptocurrencies pose no greater threat to national security than the Internet itself. Indeed, blockchain transparency has emerged as a key forensic tool to better monitor illicit finance.
The greatest threat to national security may be the economic fallout from policies that stymie innovation and send entrepreneurs abroad. For example, it would be difficult to engineer a greater innovation for the US dollar than one-to-one dollar-pegged stablecoins. Stablecoins are already the 16th largest holder of Treasury securities, represent 99% of the money on the Internet, and are destined to preserve the dollar as a global reserve currency for decades to come.
The Senate and House votes to overturn SAB-121 represent a milestone in bipartisan support for the cryptocurrency industry and demonstrate that Congress understands that blockchain technology is the future of the Internet.
One reason the SEC has been able to attempt to apply old-fashioned thinking to regulating the new Internet is that, so far, Congress has not passed nuanced legislation that defines regulatory parameters and encourages U.S. innovation. As a result, regulators have been left to rely on crumbling, decades-old financial rules that do not square with the realities of the new digital asset class.
Today, the House will consider the Financial Innovation and Technology for the 21st Century Act (FIT21), a bill that would establish a long-awaited U.S. regulatory regime for the cryptocurrency industry. The bill has the support of the cryptocurrency industry because it will ensure customer protection and long-sought regulatory clarity.
We hope that congressional bipartisan support for the cryptocurrency industry continues to prevail. And let’s hope the President pays attention to public sentiment.
As House lawmakers prepare for a floor vote on FIT21, the electorate will be watching. History will also be watching.
Chris Perkins is the president of CoinFund, an asset management firm that supports the leaders of the new Internet.
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