Congress Isn’t Likely to Pass Crypto Bills This Year — But Here are the Policy Debates to Watch Instead
Crypto regulation has come a long way from 2021, when the debate in D.C. was headlined by SEC Chair Gary Gensler’s threats and crypto holders’ pushback against taxation provisions in the Bipartisan Infrastructure Investment law.
This year, President Biden’s crypto executive order heralded a validation moment for digital assets. And over the past few months, a flurry of bills were introduced to help better define crypto regulation in the U.S.
But don’t hold your breath that any of them will pass in 2022.
Many of them are good bills, seeking to clarify the confusing alphabet soup of regulators currently overseeing pieces of the crypto industry. But there isn’t yet enough consensus or understanding around crypto in Congress to bring any legislation close to enactment.
That doesn’t mean, however, that nothing will happen on crypto regulation this year. It just means that for the remainder of 2022, there are other places to watch.
Everyone agrees that the crypto industry needs rules, but what should those rules be? Here’s what you should look out for in the next few months:
1: Executive Agencies Start Making Rules Around Crypto
Biden’s executive order on crypto charged regulators like the SEC, CFTC, and Federal Reserve to review existing regulations, and tasked the Commerce Department with looking at the competitiveness of the U.S. crypto industry. We’re likely to see those reports start to roll in this fall — with the next step being rulemaking and other processes at the agency level. The Administration won’t wait for Congress.
2. Federal Reserve Tackles Stablecoins
The Biden EO on cryptocurrency also asked the Fed to study the viability of a Central Bank Digital Currency, or CBDC. China has already launched their own government-backed stablecoin during this year’s Winter Olympics, and some have pushed the U.S. to do the same. But there’s a reason we don’t typically follow China’s regulatory model, and the U.S. shouldn’t follow their example blindly here either. Fed Chairman Jay Powell recently testified that private stablecoins should be allowed to coexist with a central bank coin. The prospect of a cash-backed digital asset that facilitates cross-border payments and protects privacy is getting closer to reality, and the U.S.’ market-based approach should be leading the charge.
3: The SEC/Ripple Case (Hopefully) Creates Some Legal Clarity
The SEC’s case against payments company Ripple finally has an end in sight, and the case will establish a precedent for the legal status of many digital assets determining if they are securities, commodities, or some other yet-to-be-defined financial product. The suit was announced at the eleventh hour by the outgoing Trump administration, and has become a topic of interest for SEC Chair Gary Gensler. A loss for the SEC would apply much-needed pressure to move away from its current enforcement-through-litigation playbook, and instead focus on creating a clearer regulatory framework for the industry. A loss for Ripple would unfortunately endorse the SEC’s current approach, which deprives crypto operators of clear rules.
4: The Potential Rise of Crypto Derivatives (And 24-Hour Trading)
FTX US has submitted an application to the CFTC seeking approval to directly trade in cryptocurrency derivatives. If approved, it could represent a gain for retail investing, allowing margins to be assessed on a 24/7/365 basis and expanding trading outside traditional market hours. FTX CEO Sam Bankman-Fried has described the move as a means to “bring [FTX’s] platform under a regulatory agency,” providing assurances to consumers. Approving the application would give the CFTC growing regulatory oversight over crypto.
5: Give Investors the Option to Safely Invest in Bitcoin Mutual Funds
The digital currency investment firm Grayscale recently submitted a SEC application to form a bitcoin exchange traded fund (ETF). This would allow trading platforms to hold bitcoin itself for the first time, rather than trading derivatives like bitcoin futures. Grayscale has argued that trading their Bitcoin Trust on the New York Stock Exchange would enhance protections for consumers, broaden access to bitcoin, and unlock billions of dollars for investors. And approving the application would give Gensler’s SEC another way to regulate crypto.
In all of these proceedings, policymakers and regulators should keep a few principles in mind.
First, regulators must ensure that crypto can continue to serve everyone. Digital assets and blockchain payments systems are providing financial services to the underbanked and lowering the cost of cross-border payments. Regulations should accelerate that progress towards financial inclusion.
Second, clarity in rulemaking is also critical. A navigable regulatory environment is needed for emerging industries to succeed, and industry leaders need guidance from regulators to protect consumers and make safe investments. And by setting clear rules, policymakers can set up the guardrails that America’s crypto industry needs to thrive.
Third, equity, accessibility, and sustainability must be at the core of regulatory considerations. As industries and consumers set their sights on the importance of corporate social responsibility, it’s critical that crypto does its part.
Finally, strengthening U.S. competitiveness in the global crypto industry should be a top priority. The U.S. needs a regulatory environment which bolsters our position as a leader in the race for blockchain innovation. Clear regulation is needed to keep up with the EU, without blunting our competitive edge.
By the end of 2022, we’ll have a much clearer sense from these debates what the future direction of U.S. crypto regulation will look like.
The Chamber of Progress (progresschamber.org) is a new center-left tech industry policy coalition promoting technology’s progressive future. We work to ensure that all Americans benefit from technological leaps, and that the tech industry operates responsibly and fairly.
Our work is supported by our corporate partners, but our partners do not sit on our board of directors and do not have a vote on or veto over our positions. We do not speak for individual partner companies and remain true to our stated principles even when our partners disagree.
