Look no further than how tough it has been for politicians to pluck off the low-hanging fruit that most of them agree on to realize how difficult it will be for Congress to approve a substantial measure to regulate cryptocurrencies next year.
On Tuesday, lawmakers unveiled the text of the so-called Omnibus spending measure. Such measures are considered must-pass legislation to continue funding the government and are frequently utilized as vehicles to address a wide range of policy concerns without the typical drawn-out discussions on separate bills, which take up valuable time on the Congressional calendar.
Even as recently as last week, some senators thought that the Omnibus would address largely agreed-upon crypto policy problems. For example, retiring Senator Patrick Toomey told Fortune that he thought 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 bipartisan support.
However, when the Omnibus was released, neither provision — nor any crypto provision, for that matter — made the cut.
That’s a negative sign for token investors and crypto businesses like Coinbase Global, which is urging Congress to enact a bill next year to clarify crypto legislation in the aftermath of FTX‘s demise in the Bahamas.
According to some analysts, a crypto-regulatory measure might lead to skyrocketing token values by offering certainty to traditional financial institutions that are now hesitant to enter the industry for fear of crossing authorities. A measure might also safeguard cryptocurrency firms by restricting the power of regulatory authorities such as the Securities and Exchange Commission, which has pursued them for huge fines.
Coinbase CEO Brian Armstrong released a blog post on Monday giving his thoughts on what Congress should do. He proposes that Congress mandate the Commodity Futures Trading Commission and the Securities and Exchange Commission to publish a list of the top 100 tokens by market capitalization, as well as whether the agencies feel each token is a commodity, security, or something else. Such a categorization might allow trading platforms to exclude crypto assets while avoiding SEC registration, which several crypto executives argue is an expensive and time-consuming procedure.
Major financial institutions have mainly held off from purchasing tokens or making significant investments in the crypto market, citing uncertainty over whether rules apply to them. Crypto supporters anticipated that regulation would instill trust, bringing billions of dollars in fresh money into the market and providing tokens the boost they needed to enter mainstream banking.
However, it appears that a sizable number of Democratic senators are leaning toward avoiding big legislation in the short term and instead pressuring the SEC to pursue crypto businesses under current regulations.
Senator Sherrod Brown (D., Ohio) discussed the possibility of a crypto ban on NBC’s Meet The Press on Sunday, recognizing that a crypto-regulatory measure may serve to “legitimize” the sector. Any proposed restriction is unlikely to become law.
More importantly, Brown stated that he had pushed the Treasury Department to coordinate a response to the FTX implosion by regulatory authorities such as the SEC and CFTC. He also stated that the administration may assist with legislation “if it comes to it.”
To be sure, several lawmakers have stated that they want to draft legislation addressing specific crypto concerns. North Carolina Republican Patrick McHenry, who is set to chair the House Financial Services Committee next year, and California Democrat Maxine Waters filed legislation this year to regulate “stablecoins,” which have a value tied to the dollar. That law is likely to be introduced in some form in 2023. Prominent committee members have also stated that a broader crypto bill is essential.
However, other crypto critics say that major legislation is unneeded 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 the federal government regulate crypto?”
Similarly, SEC Chair Gary Gensler has frequently asserted that his agency already has sufficient jurisdiction to monitor the sector under current law.
Two months ago, Democratic legislators were debating how to strike a balance between protecting consumers from damage and promoting the crypto industry in the United States. FTX’s demise has changed the Overton window. Now, the options are to crack down on cryptocurrency or utilize the law to crack down even more. Investors in cryptocurrencies should take precautions.