In the last two weeks, Washington D.C. policymakers presented the American people with two different futures on digital assets. One leads to American innovation and job growth. The other is a dead-end street in a one-road town.
Last week, with twin actions against Coinbase and Binance, the U.S. Securities and Exchange Commission (SEC) made clear that it believes crypto should not exist in America. There’s no other reasonable conclusion, given the agency’s decision not to issue a crypto-specific securities framework, despite the glaring lack of clarity in the current regulatory regime.
John Rizzo is the senior vice president of public affairs at Clyde Group.
Across the street from the SEC’s headquarters, Democrats and Republicans made progress on a bill to institute crypto market structure rules. The “discussion draft” legislation takes from a bipartisan law, the Jumpstart Our Business Startups (JOBS) Act, to institute a way for token issuers to fundraise for their offerings while maintaining strong investor protections.
The draft would also allow firms to appropriately register with government agencies like SEC Chairman Gary Gensler has claimed has always been possible. And it settles the securities versus commodities debate, including whether the federal securities or commodities regulator will take lead. (Gensler, who has said all cryptos but bitcoin resemble securities, used to think most were commodities.).
The discussion draft issued by Chairs Patrick McHenry (R-NC) of the Financial Services Committee and Glenn Thompson (R-PA) of the Agriculture Committee is slightly to the left of where an ideal Republican bill would be and slightly to the right of the Democrats’ preferred outcome. In other words, it’s just the right amount of compromise.
Suppose Republicans and Democrats can move from discussion draft to legislation and legislation to law. In that case, the crypto market will finally have stabilizing clarity that will foster innovation while protecting consumers and investors.
The U.S. will begin to catch up with the rest of the world on crypto asset regulation, and policy developments relating to financial assets can go back to being, well, boring, which is good if you’re interested in financial stability.
The end game of the SEC’s regulation by enforcement spree is unclear and should give even those skeptical of crypto assets pause. Even if the SEC is successful, crypto doesn’t go away. It just goes elsewhere – perhaps beyond U.S. borders and the control of U.S. regulators.
That’s all the more reason lawmakers need to make substantial progress on a crypto market structure bill.
The further crypto assets move from the U.S.’ regulatory perimeter, the less domestic regulators can manage risks from crypto assets.
Do you care about investors getting fleeced by fraudsters and bank-like runs that destabilize the financial system? Good luck calling another country and getting them to care about views outside their jurisdiction. Do you think blockchain technology could benefit U.S. society and want our innovators and workers to lead the way? Try again. That innovation will be happening in Dubai, Paris or Beijing.
Ending the crypto wars and reaching a negotiated regulatory framework that finally provides clarity is the only rational way forward for this country. Unfortunately, there’s reason to believe that rationality may not prevail.
Last week, during a valedictory round of interviews following his enforcement actions, Chair Gensler may have committed a classic political gaffe. Responding to an interviewer’s question, a seemingly exasperated Gensler said the U.S. “doesn’t need” more digital currency. That’s quite an admission from a chair who claims to lead a “merit-neutral” agency that does not put the finger on the scale when it comes to the wisdom of investing in a security.
Regardless of what Chair Gensler does or says, there’s no getting around the fact that attempting to crush crypto in the U.S. will kill crypto. Technology can hardly be controlled, let alone extinguished in the 21st century, and that’s what crypto is.
U.S. policymakers can either find a way to make crypto and blockchain technology work in the U.S. or follow Gary Gensler on the fast lane to nowhere.
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