How We Think Congress Will Treat Cryptocurrencies After the 2018 Midterms
by Anne Szustek Talbot, director of content, BX3 Capital
From the vantage point of cryptocurrency players and analysts, Congressional action on the part of cryptocurrency will likely stay on its same general course, albeit with the possibility for a more decidedly Democrat flavor: how regulation stands to affect the retail-level consumer as much as the big-time asset management firm.
“The members of Congress who are spearheading the crypto regulation initiatives all got re-elected, so the sponsors behind the bill will likely remain the same,” says Kyle Asman, partner and co-founder at BX3 Capital, and one of the crypto industry members who testified in front of the Congressional roundtable. “But in order for the bill to make it out of the House Financial Services Committee and onto the floor, the now-left-leaning committee will likely make consumer protections a top priority.”
Warren Davidson, the Ohio Republican who spearheaded the September Congressional roundtable, was re-elected, as were his GOP roundtable colleagues Ted Budd (R-N.C.)and Tom Emmer (R-Minn.), both of whom have drafted cryptocurrency bills since the September talk. Emmer is also one of the four co-chairs of the 18-member Congressional Blockchain Caucus, most of whom will be returning in January. Co-chair Jared Polis (D.-Colo.) is staying in the Rocky Mountain State as the nation’s first openly gay governor. (What will this mean for crypto in Colorado?) Longtime Virginia Republican Bob Goodlatte is retiring, to be replaced by fellow Republican Ben Cline. Pennsylvania Republican Keith Rothfus succumbed to the House “blue wave,” as appears will Tom McArthur as the votes get counted in his tight race against Democratic challenger Andy Kim in New Jersey’s 3rd Congressional district, which stretches from outside of Philadelphia to the Jersey Shore.
Minor shifts among Congress’s top cryptocurrency brass or not, beyond any possible consumer-watchdog tacks, don’t expect major sway in crypto policy. From the early days of Congress’ cryptocurrency task force, crypto has been a bipartisan cause that has remained far from being a hot-button topic for rhetoric. “Neither political party made the topic a campaign issue, as the space is still new and generally does not affect the average taxpayer,” says JR Lanis, partner and cryptocurrencies expert in the securities practice at the Los Angeles office of law firm Drinker, Biddle & Reath.
Cryptocurrency bills pending in Congress include H.R. 3708, a bill to exempt small transactions (less than $600 at inception, pegged to inflation going forward) from IRS reporting, as well as H.R. 6973, meant to protect taxpayers from regulation by enforcement on convertible cryptocurrency received following a blockchain forks.
H.R. 6974 also seeks to provide a regulatory safe harbor for crypto, but on the licensing and registration front for blockchain providers and developers that do not “control” users of the software of the network. For the purposes of the bill, “control” is defined as “the legal right, authority, or ability to obtain upon demand data sufficient to initiate transactions spending an amount of digital currency.”
David Schweikert (R-Ariz.), another of the Congressional Blockchain Caucus co-chairs, is the lead sponsor of H.R. 3708; Emmer is heading H.R. 6973 and 6974. Budd is the leading sponsor of H.R. 6721, a bill that would provide that the Financial Crimes Enforcement Network gets monitoring technology for cryptocurrency transactions and other novel financial technologies. Each of these bills are still in committee; whether or not they reach the House floor for a vote is largely dependent on factors beyond political winds.
The consensus in the cryptocurrency industry is that regulation needs to happen — no matter which side of the aisle gets it done — to prevent more regulation by enforcement, as two of the pending bills seek to avoid. Participants at the September roundtable were nearly unanimous in mentioning ambiguity as a reason for taking cryptocurrency-based businesses overseas, lest they make the wrong step without knowing they took a wrong step in the first place.
The pending bills will likely survive the Congressional term next January, though with the chance for some slight tweaks to language. In the meantime, members of Congress have asked the SEC for some clear guidance on initial coin offerings (ICOs).
As far as Congress is concerned, the cryptocurrency sector can rest somewhat easy. As has been the case for some time now, it’s the financial enforcement bodies where crypto watchers need to focus their attention as we head into 2019. Even on this front, there may be softer times ahead. Says Landis, “U.S. regulators, especially the SEC and CFTC, have demonstrated an increasing recognition that new rules and guidance must be issued — as opposed to relying on old paradigms — to address this growing space.”