Last year at this time, cryptocurrency was on many politicians’ minds as they sought to grapple with the collapse of FTX, jostling with each other to be the loudest advocates for preventing such collapses in the future. FTX’s co-founder and CEO Sam Bankman-Fried had gone from being a crypto political poster boy to its pariah.
Fast forward to one year later and crypto has largely dropped out of the public spotlight, save for the long-awaited approval of a spot Bitcoin ETF. Presidential candidates such as Vivek Ramaswamy and Florida Governor Ron DeSantis have officially dropped out of the presidential race and with them almost all mentions of cryptocurrency.
While the SEC continues to bring actions against a number of players in the crypto ecosystem including 124 respondents in 2023, in the larger political discourse, crypto has taken a backseat to things such as AI and children’s safety on social media.
To the lobbying and advocacy groups that are still trying to move legislation around digital assets forward, however, that may not be such a negative turn of events.
“Having crypto fall to the background when everyone’s sights are turned to AI, I think it’s a good thing,” said Cody Carbone, Chief Policy Officer at the industry group Chamber of Digital Commerce. “Taking a phrase from all of these builders and developers of the ecosystem during the bear market, now it’s time for us to build. Now’s the time for us to actually get in there and educate.”
Unchained spoke with three groups to better understand how the crypto lobbying industry, which spent almost $19 million in the first three quarters of 2023, is approaching the coming year with an election around the corner. Three areas of focus were echoed among these groups — the hope to advance legislation around market structure, as well as around stablecoins, and to do something to address illicit finance, which has drawn the ire of lawmakers.
The FIT Act
A major focus of industry groups has been on passing the Financial Innovation and Technology for the 21st Century Act (FIT Act), which would provide a regulatory framework for digital assets with the Commodity Futures Trading Commission (CFTC) overseeing these assets as commodities if they are in fact decentralized. The bill classifies decentralization in a few different ways. These include no one having “unilateral authority to control the blockchain or its usage,” and “no issuer or affiliated person [having] control of 20% or more of the digital asset or the voting power of the digital asset.”
According to Carbone, the FIT Act would not just cover decentralized assets. The CFTC would receive spot market jurisdiction over all assets that don’t fit the Howey test, which determines if a transaction should be regulated under securities regulations and so would fall under the SEC. But, additionally this bill gives specific jurisdiction to the CFTC over decentralized assets.
“If we can get the FIT Act or a stablecoin bill done this year, that would be a huge step forward,” said Kristin Smith, the CEO of the Blockchain Association, another industry group.
StablecoinsStablecoin legislation was also targeted as a key focus by Quincy Enoch, co-chair of the economic policy practice group at lobbying firm Invariant. The latest legislation would empower the U.S. Federal Reserve to write requirements for issuing stablecoins, including having sufficient one-to-one backed reserves.
The bill also hopes to clarify that stablecoins aren’t securities or commodities and therefore don’t fall under the jurisdiction of the SEC or CFTC. And while state regulators could approve state issued stablecoins, they could hand over their supervision to the Federal Reserve.
“I think both sides of the aisle would like to see something done to build out that framework, so you can build a regulatory perimeter where you can have good actors inside that perimeter and it becomes much easier to identify the bad actors and the people that don’t want to comply,” said Enoch.
Doing something to address illicit finance is seen as a top priority by politicians. Senator Elizabeth Warren has been vocal in her concerns about crypto’s use in illicit finance, for example, proposing the Digital Asset Anti-Money Laundering Act in July of 2023 before gaining 11 co-sponsors later that year. The bill would extend Bank Secrecy Act requirements, which include reporting and holding personal details and extending know your customer mandates to crypto actors such as miners and wallet providers.
The crypto industry is extremely wary of the specifics of Warren’s bill, however.
“It would just completely cripple the innovation and the integrity of this industry,” said Carbone.
“And so we agree that we need to do something on illicit finance. There is consensus across the industry right now that if there is any amount of digital assets being used by terrorist groups by money launderers, or by rogue nations, we want to combat that as much as possible to protect consumers and investors.”
Supporters of crypto have argued that the perception of crypto’s role in illicit finance is less than what Warren claims. But there is a consensus among lawmakers that something will need to be done to address issues of illicit finance, even if it doesn’t look like Warren’s bill, said Enoch.
Election Year Challenges
But doing anything during an election year, when political posturing can take priority over productivity, is a challenge, which Carbone, a former staffer on Capitol Hill, recognized will impact all of these debates.
“I’ve been in DC for a while and it is an election year,” said Carbone. “Moving legislation is super, super hard. And so we may be capped at getting a vote on the House floor — like that might be the win for those bills this year. And that’s fine.”
That’s because passage on the House floor, even if it’s not considered in the Senate, is a win for the industry because those bills will have momentum going into the next Congress, according to Carbone.
Smith likened the current advocacy and lobbying apparatus in previous years to building a plane as it was flying. This year though, the plane is finally built.
“If you look comprehensively at the crypto industry in the broader community, I think we have finally sometime in 2023 reached the point of being a mature advocacy effort where all of the pieces are in place,” said Smith.
The coming months will tell if those pieces are part of an actual puzzle that can come together and move the industry forward.