Crypto Needs Congress, But U.S. Lawmakers Have Opted for Pandemonium

While Congress stares down the barrel of a Nov. 17 government shutdown, the rudderless House remains the focus of the crypto industry’s hopes for regulatory progress.

AccessTimeIconOct 9, 2023 at 2:24 p.m. UTC
Updated Oct 9, 2023 at 2:36 p.m. UTC
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  • An already tenuous plan for crypto legislation in the House of Representatives could be thrown into uncertainty by its leadership mess.
  • Industry lobbyists think there could still be a window for House progress by the end of the year, though the Senate still poses a problem.

Without the U.S. Congress outlining a clear system of rules, the crypto industry fears it’ll be relegated as a volatile financial backwater. But Capitol Hill is beset by drama, including a U.S. House of Representatives that fired its speaker and a budget debate that could derail the federal government.

Two crypto bills are carrying a lot of the sector’s hopes, because they’ve made it further than any legislation to date: one House bill that would establish rules for digital assets markets and another that would set up regulations for issuing and trading stablecoins in the U.S. Until now, Crypto lobbyists thought that both pieces of legislation had a shot to reach the House floor in November.

The problems: Nov. 17 is the new deadline for a government shutdown, unless Congress can agree to a spending plan it wasn’t able to execute last month. And one of the top voices in that negotiation is the speaker of the House. Republicans dumped the speaker, Rep. Kevin McCarthy (R-Calif.), in an unprecedented fashion and are yet to pick a new one.

“Given that there's such a distraction with everything else going on, it probably means no consideration of crypto bills in the short run,” said Kristin Smith, CEO of the Washington-based Blockchain Association.

It’s possible for lawmakers to work on crypto efforts while also dealing with the bigger budget drama. (Members of the powerful House Financial Services Committee proved that by clearing a central bank digital currency (CBDC) bill while the spending debate raged before last month’s 45-day agreement to postpone the budget deadline.)

But the chairman of the Financial Services Committee that has shepherded a number of crypto-related bills toward the House floor, Rep. Patrick McHenry (R-N.C.), is now the acting speaker. It’s positive for the crypto industry that he really wants to get digital assets legislation approved, and his new role turns up his volume. What’s bad: He’s pretty busy.

New Speaker

When the Republicans pick a permanent leader, McHenry may have some goodwill to spend. So far, Reps. Steve Scalise (R-La.), the House leadership’s current No. 2, and Jim Jordan (R-Ohio) – who is backed by former President Donald Trump – are openly vying for the job. Neither of them have records of supporting crypto.

Possibly more important for crypto, Rep. Tom Emmer (R-Minn.) is hoping to step up from House majority whip to Scalise’s majority leader position, which would put a fervid crypto advocate in an even higher role. But he may face opposition, because the same Trump-devoted corner of the Republican Party that ousted McCarthy now seeks to take over the leadership.

The election is meant to be a short-term affair, possibly ending when the Republicans gather to settle things this week. Still, winning the necessary votes may not be so easy in a party torn by infighting, and it's uncertain what kind of side deals will be struck by the eventual winner. McHenry would presumably return to his committee having scored a few points against Democrats during his short time with the gavel.

Almost instantly, the permanent new speaker will have to try to resolve the budget dispute that still threatens to hang a closed sign on the government next month. If lawmakers are battling over the budget, they may not have bandwidth for much else – including crypto.

Smith speculated that McHenry would be well placed to enact crypto legislation when he returns to his committee position.

“He's been called upon and stepped up at a time when his House colleagues needed him to help cut a deal and that is going to create a tremendous amount of goodwill and political capital that McHenry will be able to use in other areas down the road," she said.

Crypto legislation

The House will have “only about five weeks” to avert a shutdown, warns an analysis from Beacon Policy Advisors in Washington. Last time, members passed a so-called continuing resolution (CR) to provide temporary funding.

“Fiscal conservatives will be loath to back another CR, but completing work on all 12 appropriations bills and negotiating them with the Senate before then is a tall order,” Beacon wrote in a note to clients, predicting that a choice of Jordan would be more likely to end in a shutdown (Jordan his been referred to as a “legislative terrorist.”) “The new speaker will likely view McCarthy’s compromise with Democrats in hindsight as a cautionary tale.”

Crypto legislation was on track for House consideration next month, but it’s now less certain when it will come up, observers say.

“The U.S. needs regulatory clarity that protects consumers and promotes innovation, so the hope is that we see movement before the end of the year,” said Ji Kim, the general counsel and head of global policy at the Crypto Council for Innovation, an international advocacy group.

The fate of the digital assets bills considered now in the House is unclear. They could fail to go anywhere at all for the rest of the year, which tends to be the safest prediction for any bills in this Congress. They could achieve floor votes – maybe even victories – but they’d likely meet a quiet death in the Democrat-controlled Senate. Or some portions of the bills could be pushed into must-pass budgetary legislation and ride those coattails into law. But that would likely need support from both parties in both chambers, for which the stablecoin bill may be the more likely.

Whatever happens, the industry isn’t entirely in love with the current language of those bills, so lobbyists are hoping to edit the legislation while it’s in motion.

Senate resistance

The Senate is showing none of the enthusiasm for crypto action that House Republicans – and a handful of Democrats – have demonstrated.

Neither Sen. Sherrod Brown (D-Ohio), the chairman of the Senate Banking Committee, nor Sen. Tim Scott (R-S.C.), the panel’s top Republican and a current candidate for the party’s presidential nomination, are openly engaged with crypto legislation. Brown’s most recent comments, on the contrary, encouraged regulators to delve into their existing authorities to deal with dangers from the industry. Meanwhile, Brown has put his focus on the Secure And Fair Enforcement Regulation (SAFER) Banking Act meant to ensure proper financial services for the marijuana industry.

“It just depends on what it is that Sherrod Brown wants and is there some kind of negotiation that can come together,” Smith said. “If Brown wants to get his SAFER Banking bill done – or something like that – maybe he'll say, ‘Fine, I'll give you guys stablecoins if you take my cannabis banking bill.”

Because this is only the first year of the two-year congressional session, the end of the calendar isn’t a death sentence for any of the legislation. However, January starts a presidential election year when the political stakes increase on everything and the partisan fight gets bloodier, so moving legislation becomes more complicated.

Edited by Ben Schiller.


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Jesse Hamilton

Jesse Hamilton is CoinDesk's deputy managing editor for global policy and regulation. He doesn't hold any crypto.

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