Senate Votes to Kill SAB 121 Custody Bill: How Crypto Became So Political

Cryptocurrencies were once considered the domain of a small niche of financial-tech enthusiasts and even a symbol of libertarianism.

However, digital currencies have increasingly been at the center of political debate in the United States. The upcoming 2024 presidential election in November has made this even more the case, with crypto becoming a hot-button issue with candidates from both major parties weighing in on their potential and pitfalls.

On Thursday, the Senate voted 60-38 to overturn the SEC’s Staff Accounting Bill (SAB) 121, which imposes tough requirements on banks wishing to custody cryptocurrencies. The resolution did receive some bipartisan support, with 12 Democrats voting alongside 48 Republicans to reject the bill. However, President Biden has vowed to veto the resolution, highlighting how crypto has come to divide the Dems.

But how did we get here in the first place?

At their core, cryptocurrencies offer a decentralized financial system, which challenges traditional banking and financial regulation. The decentralization that this community is built upon appeals to a diverse group of stakeholders, including technologists, libertarians, and those wary of overreach by regulators.

Initially, lawmakers were skeptical of bitcoin and other cryptocurrencies due to their association with illicit activities because of their anonymous nature. Though as their popularity and market capitalization soared, so did their legitimacy and interest from regulators.

In turn, this makes stakeholders in the crypto industry valuable constituencies during election years and prompts candidates to take clear stances on cryptocurrency regulation.

This year, crypto lobbying group Fairshake and its affiliates reportedly raised $102 million for a political action committee (PAC) to support pro-crypto candidates, while Stand With Crypto announced it had recently started its own PAC.

During the 2022 year, data showed that the cryptocurrency industry spent around $21.6 million on political lobbying.

Republicans vs. Democrats

The 2024 U.S. election cycle has already shown that cryptocurrencies will be a pertinent issue. Ivan Soto-Wright, the CEO of fintech services provider MoonPay, has even said that the election this year will “define the future of the industry” in the US.

As a crypto company founded in America, we’re proud to #StandWithCrypto and have made a donation to support their efforts in this pivotal year for our industry.

Here’s the note our CEO shared with everyone at MoonPay this morning: pic.twitter.com/PzXxjF3FaZ
— MoonPay 🟣 (@moonpay) May 13, 2024

This upcoming season has made it clear that the primary candidates have a divided approach on regulation that ultimately reflects broader ideological differences. The debate centers on several key areas: financial innovation, consumer protection, national security, and economic inclusion.

Spectators have been quick to point out a more “crypto-friendly” stance among Republicans, and especially Donald Trump, compared to the Democrats and Joe Biden.

Trump has leaned into the crypto space when he released several collections of nonfungible tokens (NFTs) starting in 2022, selling millions of them. And he’s recently branded himself as the crypto’s champion, saying at a recent event for large buyers of his NFTs that “If you’re in favor of crypto you’re gonna vote for Trump because [Democrats] want to end it.”

For his part, President Biden in September 2022 released the “Comprehensive Framework for Responsible Development of Digital Assets.” For the US, this was the first-ever “whole-of-government” approach for addressing the risks of digital assets and harnessing their potential benefits, along with those of the underlying blockchain technology.

However, the Biden Administration has been shifting towards a more hostile stance on crypto, with SEC Chair Gary Gensler leading the way by suing a number of exchanges and other crypto companies, and challenging the classifications of a number of cryptocurrencies. Biden has also backed measures that have tried to block companies offering crypto services from having banking access.

Historically, proponents of cryptocurrencies have been more aligned with the libertarian wing of the Republican Party and some progressive Democrats who argue that digital currencies represent financial innovation that can democratize access to financial services.

In these instances, those Republicans and Democrats focus on the potential for innovation that blockchain technology can bring to revolutionize industries from finance to supply chain management.

Conversely, other Democrats, and more conservative Republicans, raise concerns about consumer protection and financial stability. They argue that the volatility of cryptocurrencies poses risks to uninformed investors, and that the lack of robust regulatory frameworks can lead to market manipulation and fraud.

The collapse of high-profile cryptocurrency exchanges such as FTX and the volatile swings in the value of bitcoin and other digital currencies are often cited as evidence of these risks.

Criticism of Crypto’s Politicization

While the crypto industry has been actively responding to the Biden Administration’s support of SAB 121, some industry insiders have recently cautioned voters not to vote solely based on crypto and to look at the bigger picture at stake on the ballot.

Tim Kravchunovsky, the founder and CEO of the decentralized telecommunications network Chirp, said that making crypto a political issue “undermines its very ethos,” but when it occurs, people should be thinking of the big picture.

“We should be focusing on the fundamentals of building our projects to ensure effective real-world applications, rather than chasing after political headlines. Presidents and ruling parties can change every four years in the US — we need to build an ecosystem for the long-term.”

Venture capitalist and noted crypto commentator Nic Carter made the case on X that the Biden Administration’s “anti-crypto agenda” is a politically bad move. He argued that “harassing” the crypto industry causes no policy goals to be achieved and burns “a lot of Americans [that] really care about crypto.”

Meanwhile, Charles Hoskinson, the co-founder of Cardano and Input Output Global, posted a video on X in which he claims Biden is trying to “kill crypto.”

As digital assets become more integrated into the global financial system, the politicization of cryptocurrencies is likely to only intensify.

UPDATE (May 17, 2024 11:15 a.m. ET): Updated headline and third paragraph to add additional context.