Cryptocurrency is having a moment in Washington D.C. The Senate voted last week to overturn an SEC rule, Staff Accounting Bulletin 121 (SAB-121), that had imposed onerous accounting standards on cryptocurrency assets held by financial institutions. The Senate vote followed House approval of the same pro-crypto measure.
This week, the House will consider Financial Innovation and Technology for the 21st Century Act (FIT21), a bill that would establish a long-awaited U.S. regulatory regime for the crypto industry. And as of Monday, the U.S. Securities and Exchange Commission (SEC) appears to be leaning towards approval of exchange-traded funds (ETFs) for the spot market for a type of cryptocurrency known as Ethereum. If approved, it would be the second type of crypto ETFs authorized by the SEC. The tide is shifting.
President Biden has said he’ll veto the Congressional action reversing SAB-121. We hope he listens to lawmakers in his own party, including Senate Majority Leader Chuck Schumer and Corey Booker of New Jersey, who were among those who voted 60-38 to repeal the SEC rule.
At the same time, spot ether ETF approval would be another giant step forward for the crypto industry on its inevitable road to broad-based mainstream adoption. In January, SEC-approved ETFs pegged to the spot market in Bitcoin began trading.
The crypto industry demands clarity
Crypto got a bad name with the spectacular implosion of Sam Bankman-Fried’s fraudulent FTX empire, followed by the incarceration of Changpeng “CZ” Zhao, the former CEO of Binance, the largest global cryptocurrency exchange.
That stigma masked all the potential positive benefits of the blockchain technology that underpins cryptocurrency. More than 50 million Americans now hold cryptocurrencies. And the variety of exchange-traded funds pegged to Bitcoin that have sprung up this year have attracted $12 billion in inflows as of May—one of the most successful ETF launches in history. No wonder Congress has taken notice.
The Congressional repeal effort was aimed at the SEC’s Staff Accounting Bulletin 121 (SAB-121), adopted in 2022. The rule required financial institutions that hold crypto accounts to treat them as liabilities, which made the safekeeping of digital assets simply uneconomical. A recent analysis by the bipartisan Congressional Research Service had observed that rules “represents a shift from traditional custodial practices, could limit involvement of certain institutions, and may introduce new costs or risks.”
At its heart, blockchain technology is here to stay, remains bipartisan, and it’s building momentum on a path to mainstream adoption as the country focuses on the November elections.
While agencies could have reduced ambiguity by working together to clearly and precisely define the boundaries of their respective jurisdictions, they have refused to do so. Instead, they have gone on campaigns of “regulation by enforcement” to assert their authority over the asset class and to suppress its adoption and growth.
This approach has been costly and expensive for those on the receiving end, although recent court rulings are giving the crypto industry some of the clarity it has been seeking. While this is not the preferred policy path, checks and balances are working, and this is unlocking pent-up demand for clearly regulated crypto products.
Emerging bipartisan support
With the November U.S. elections looming, a sharply divided electorate has found common ground in their support of blockchain technology. For progressives, blockchain-powered finance eliminates gatekeepers. It makes finance more accessible and inclusive at a time when the crackdown on crypto alienates communities of color, who have embraced the asset class. Among conservatives, agency overreach violates fundamental principles of free markets and more limited government.
Regardless, leadership in innovation and technology remains a shared American value. In fact, 20% of voters in key battleground states identified crypto as a major issue in the 2024 election season according to a recent survey by Digital Currency Group. As seen by the success of pro-crypto candidates in recent primaries, candidates who choose to fight crypto do so at their own peril.
In a final act of desperation, anti-crypto crusaders have sought to garner bipartisan support by suggesting that crypto harms national security. But crypto is no bigger threat to national security than the internet itself. In fact, the transparency of blockchain has emerged as a key forensic tool to better track illicit finance.
The greater threat to national security could be the economic fallout of policies that thwart innovation and send entrepreneurs overseas. For example, it would be difficult to design a greater innovation for the U.S. dollar than stablecoins pegged one-to-one to the dollar. Stablecoins are already the 16th largest holder of Treasury bonds, represent 99% of internet money, and are set to preserve the dollar as the global reserve currency for decades to come.
The Senate and House votes to overturn SAB-121 are a milestone in bipartisan support for the cryptocurrency industry and show that Congress understands that blockchain technology is the future of the internet.
One reason the SEC has been able to attempt to apply antiquated thinking to the regulation of the new internet is that, so far, Congress has not passed nuanced legislation that defines regulatory parameters and encourages U.S. innovation. As a result, regulators have been left to rely upon decades-old dilapidating financial rules that do not reconcile with the realities of the new digital asset class.
Today, the House will consider the Financial Innovation and Technology for the 21st Century Act (FIT21), a bill that would establish a long-awaited U.S. regulatory regime for the crypto industry. The bill has the support of the cryptocurrency industry because it will deliver customer protections and long-sought-after regulatory clarity.
We hope that Congress’s bipartisan support for the crypto industry will continue to prevail. And we hope the President takes heed of the public sentiment.
As House lawmakers prepare for a floor vote on FIT21, the electorate will be watching. History will be watching, too.
Chris Perkins is the president of CoinFund, an asset management firm that champions the leaders of the new internet.
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