Last July, the House Financial Services Committee approved two major pieces of legislation aimed at creating a regulatory framework for the cryptocurrency industry, the Financial Innovation and Technology for the 21st Century Act and the Clarity for Payment Stablecoins Act. Neither came up for House votes that year, but committee Chair Congressman Patrick McHenry said at a Bitcoin summit last week that he hopes they can be passed by the House and Senate before the 2024 elections.
I’m no political analyst, but I have some projects that would benefit from the legal clarity in the legislation. (Disclosure: I am an active crypto investor and have venture capital investments and advisory relations with companies in the space). Currently, various institutions are making their own determinations including the Internal Revenue Service, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Reserve and the courts. Some of those conflict, and others make life difficult for people working in crypto. Many would welcome clear guidelines from Congress, with specific assignments to various agencies to refine and interpret the different individual issues.
You might expect progressives who don’t follow crypto closely to be generally supportive of innovation, while conservatives would tend to be skeptical of non-traditional ways of doing things. But crypto reverses that assumption. Most Democrats seem to prefer to let the experts at agencies deal with the issues, and for Congress to wait and see how that works out before issuing new rules. Most Republicans seem inclined to rein in the discretion of agencies, and to defer to the private sector to figure things out for itself. Therefore, hopes for the passage of any legislation rest on the general deregulatory sentiment to bring votes from almost all Republicans, with a few crypto-friendly Democrats putting things over the top.
An important point is that neither bill deals directly with crypto. Rather they focus on how traditional fiat currency will move in or out of the crypto economy. Crypto is a set of mathematical tools, including public-key cryptography and game theory, for organizing networks of individuals and resources. It can function just fine without any connection to the traditional economy — in fact that’s the whole point. But without the ability to exchange crypto assets for traditional currency, the networks must be self-sufficient. Members have to provide the necessary resources — developer time, servers, etc. — and to take compensation in the services the networks deliver.
It’s more efficient for networks to sell crypto assets to investors for traditional cash, and use that cash to pay developers, buy servers and otherwise fund the necessary network infrastructure. Those investors want to be repaid in traditional currency as they may have no interest in the services the network provides.
