Cryptocurrency is now a hot topic in United States politics. It wasn’t always like this, however, especially since just a small percentage of U.S. politicians seem to have a baseline understanding of digital currencies.
Nonetheless, it’s now a wedge issue poised to morph into a destructive political football destined to occupy a new, uncomfortable space in the consistently devolving culture war. Although this is certainly uninspiring news for common sense political discourse in the United States, it remains to be determined how this will affect the cryptocurrency ecosystem.
Let’s start with how we got here.
A few legislators in Congress have been quietly working on common-sense cryptocurrency regulation for the last couple of years. These informed Democrats and Republicans in the U.S. House of Representatives and Senate have thoughtfully taken up the matter and drafted legislative measures to define cryptocurrencies, hedge investor risk, defend against fraud and integrate digital currency into a long-established centralized system. Those waiting for lawmakers on either side of the aisle to embrace total decentralization will be waiting a very long time. Nobody in the 117th Congress is considering this, and it’s unlikely anyone in the 118th, 119th or 120th will either.
Until recently, cryptocurrency and blockchain matters weren’t discussed in the halls of Congress, just like they weren’t coffee table issues for the majority of disinterested American citizens. They weren’t political wedge issues and were never topics of debate between candidates Donald Trump and Joe Biden in the 2020 presidential campaign. Most Americans simply didn’t know or didn’t care about cryptocurrency.
Things changed for several reasons, not the least of which were the Twitter proclivities of billionaire and Dogecoin enthusiast Elon Musk. On April 25, Musk tweeted: “Am hosting SNL on May 8.” The price of Dogecoin closed at $0.27 that day. The following day, NBC confirmed Musk’s announcement, and the memecoin closed at $0.32.
Soon after, Shark Tank star and billionaire Dallas Mavericks owner Mark Cuban announced that BitPay handles “Mavs Doge sales,” also saying on the The Ellen DeGeneres Show: “At the Mavs, we sell a lot of merchandise for Dogecoin, and you should look at it for the Ellen Shop.”
At that point, crypto newbies eager to make a quick buck clamored to open accounts on welcoming trading platforms like Robinhood and cryptocurrency exchanges like Coinbase. DOGE started buzzing, inexperienced speculators flocked, HODLer’s held on, and just before Musk’s opening monologue, Dogecoin topped out at nearly $0.75. Musk’s performance was uninspiring, and Crypto Twitter was unimpressed. During a skit later in the show, Musk’s character said Dogecoin was a “hustle.”
Dogecoin began its precipitous descent. FOMO, as it so often does, led to FUD — sometimes sad, desperately delusional FUD. Two of Washington, DC’s most prolific, competitive politicians took notice and quickly took up positions on either side of the cryptocurrency regulatory debate.
Cue Senator Warren
Musk’s apparent market manipulation and his Saturday Night Live appearance weren’t the only motivators for Senator Elizabeth Warren to speak out about cryptocurrency. She certainly must have noticed the market’s seesaw-like reaction to China banning cryptocurrency transactions for financial institutions on May 18.
Warren has also expressed concerns about token volatility in the past, criticizing Robinhood’s checkered history of alleged cheating — having frozen out traders from selling Dogecoin when it was tanking on May 8, just after Musk’s SNL appearance. On June 9, Warren talked to Bloomberg Technology about crypto, telling the publication: “It’s the Wild West out there, and it makes it not a good way to buy and sell things and not a good investment — and an environmental disaster.”
Bitcoin mining consumes roughly the same amount of electricity as Washington state—putting pressure on our power grids and worsening the #ClimateCrisis. We need to protect our planet and crack down on environmentally wasteful crypto mining practices. https://t.co/ChKYcD82gH
— Elizabeth Warren (@SenWarren) September 7, 2021
Next to Senator Bernie Sanders, Warren is the most influential progressive voice in the upper house. Although the senator is unable to set policy — only moderate legislation can pass this Senate — she’s very influential, and her positions are echoed by a sizable portion of the Democratic base. Those constituents who know little or nothing about cryptocurrency will likely accept her rhetoric as fully accurate.
Warren believes that cryptocurrency is a “lousy investment” for the average person. It really doesn’t matter that she and other legislators could change the taxable status of crypto for purchasing goods with the stroke of a pen, or that cryptocurrency is a good investment for those willing and interested in educating themselves, or that crypto volatility has no impact on the uninvested. Her message to the base is simple, clear and effective: Cryptocurrency is bad for the little guy. It’s good for the rich. It’s just another tool to be used to stick it to the middle class.
Senator Cruz, always looking for an opportunity to stir the pot
Senator Ted Cruz may not be the most influential voice on the conservative side of the aisle, but he’s still a formidable politician. It’s unclear if he took up the cryptocurrency matter in reaction to Senator Warren or he simply stumbled upon an opportunity to hammer Democrats. Cruz is a long-term political opportunist who is smart and talented enough to know how to expand the base, yet he’s often ignorant about the issues that he’s for or against.
On June 9, Cruz told Fox News host Sean Hannity that he doesn’t understand Bitcoin: “It is a new cryptocurrency. To be honest, I don’t fully understand it. […] It has upside, but be careful.” He also said that people are going to use Bitcoin as a “hedge” against inflation because President Biden is proposing “$7 trillion in new spending.”
Cruz is right that the U.S. is currently experiencing inflation, although it’s unrelated to unallocated federal infrastructure dollars. It’s the result of several factors, including COVID-19-related supply chain delays. Cruz is also correct that Bitcoin is a cryptocurrency, but it’s not new. The senator certainly didn’t understand cryptocurrency at the time of the Hannity interview but still managed to present himself as an informed voice — as the conservative anti-Warren cryptocurrency hero with a political ax to grind.
The Senate is on the verge of passing legislation that would be TERRIBLE for cryptocurrency.
The infrastructure deal contains DANGEROUS provisions that would devastate crypto and blockchain innovation.
Supporters of crypto need to make their voices heard. https://t.co/iXrcnne0tV
— Ted Cruz (@tedcruz) August 7, 2021
In early August, he twisted the China crypto-ban narrative to make a political point to counter the tax reporting requirements of Biden’s Infrastructure Investment and Jobs Act and tweeted: “Democrats hate crypto currencies,” pointing the finger at Saule Omarova, Biden’s pick for comptroller of the currency who’s unlikely to be a friend to crypto.
Senator Warren is a legislative activist who frequently understands the ins and outs of almost every issue that she takes on. Although she’s off the mark when it comes to cryptocurrency, her rigid ideological leanings make it almost impossible to convince her otherwise. Senator Cruz is a seasoned political operator. He understands the electoral landscape of present-day conservatism better than most and will say almost anything if it serves him politically.
When it comes to cryptocurrency, it’s difficult to see how ideology isn’t more of a driver for either Senator than are facts and on the ground or market realities. Still, there’s value to be found in their baseline arguments. If cryptocurrency is to be adopted by mainstream Americans, it absolutely requires reasonable regulation that doesn’t stifle the industry and put the nation at a competitive, global disadvantage.
Christine Trent Parker — an attorney at Reed Smith whose focus is on regulatory, enforcement and transactional matters related to cryptocurrencies — believes that retail customers want “the innovative financial products that are offered overseas, in the foreign exchanges. […] They see that and they want that and they’re going to go follow it wherever it is.”
Many of those products aren’t unavailable in the U.S., and those that are accessible have no consumer protections. Parker is concerned that “the political fault lines,” like the positions taken up by Senators Warren and Cruz, have “stymied the US regulators” from offering products that cater to retail customers and have a consumer-protection element.
What’s going on in good faith?
There are other lawmakers in Congress quietly engaged in good-faith efforts that may eventually benefit retail customers as well as institutional investors and cryptocurrency providers. In the Senate, Republicans Pat Toomey, Cynthia Lummis and Rob Portman recently teamed up with Democrats Mark Warner and Kyrsten Sinema to negotiate a compromise amendment to fix controversial cryptocurrency language in the Infrastructure Investment and Jobs Act. The amendment did not receive the required unanimous consent from all 100 senators, with Richard Shelby objecting, and did not find its way into the final legislation.
Also, in late May, Sinema and Lummis announced that they will co-chair the U.S. Senate Financial Innovation Caucus. According to a press release from Lummis, the caucus will focus on responsible financial innovation, distributed ledger technology and digital assets. On the national security front, Senator Bill Hagerty introduced legislation to study the implications of China’s efforts to implement its own digital currency, while Senator Marco Rubio and Senator Warren have drafted bills focusing on the role of cryptocurrency in ransomware attacks.
Senate lawmakers Maggie Hassan and Joni Ernst co-sponsored a bill to “help improve oversight of cryptocurrency mining operations in foreign countries.” The legislation would require the secretary of the Treasury, in consultation with other agencies, to determine how other nations mine digital currencies, identify the dollar value of digital currency mined each year from 2016 to 2022, and identify potential supply chain disruptions with respect to mining operations.
Although the Senate is still considered the kinder, gentler chamber of Congress, bipartisan consensus among members is rare. Kristin Smith, executive director of the Blockchain Association, tells Cointelegraph that cryptocurrency regulation is an issue where lawmakers should be able to find common ground:
“Crypto really is bipartisan. It’s important as a narrative against what’s happening in China. It’s important from a financial inclusion perspective. It’s important from an innovation and jobs creation perspective. These are issues that both Republicans and Democrats care about.”
As active as the Senate has been recently, the real heavy lifting is happening in the House of Representatives. Lawmakers have already introduced well over a dozen bills, many of which are bipartisan.
Much of that legislation was incubated in the Congressional Blockchain Caucus. Originally formed in 2016, current co-chairs Bill Foster, Darren Soto, Tom Emmer and David Schweikert lead 31 bipartisan caucus members. The caucus believes in the future of blockchain technology, understands that Congress has a role to play in its development and has decided on a light-touch regulatory approach.
Unlike outspoken lawmakers like Senators Cruz and Warren, Blockchain Caucus members rarely appear on mainstream media news outlets, but their efforts in the space are far more significant. A congressional staffer close to the matter tells Cointelegraph:
“As these partisan leanings on this are emerging and we’re seeing it more and more, I think the emphasis and the focus need to be on the Blockchain Caucus, the [bipartisan] work that the caucus is doing, and not pay too much attention to the partisanship.”
In July, the co-chairs sent a letter to the IRS requesting guidance on taxes applied to block rewards distributed in a proof-of-stake network. They wrote that “It is important that tax policy does not indirectly dissuade U.S. taxpayers from participating in this promising new technology.”
Representative Emmer also introduced the Blockchain Regulatory Certainty Act, to protect software developers and non-controlling blockchain service providers, as well as two companion bills: the Blockchain Promotion Act and the Safe Harbor for Taxpayers with Forked Assets Act. On the other side of the aisle, Representative Soto co-sponsored the Blockchain Promotion Act and the U.S. Virtual Currency Market and Regulatory Competitiveness Act, a bill that would recommend regulatory structure and would require the Commodity Futures Trading Commission and the Securities and Exchange Commission to determine the benefits of digital currencies to the commodity market.
The only legislation to move beyond the introductory phase was sponsored by caucus member Patrick McHenry. The bill passed the House in April and, if adopted, would order the SEC and the CFTC to form a working group to analyze the regulatory framework for digital assets in the United States.
Additional bills call for the establishment of a National Blockchain Technology Coordination Office, a report about unfair trade practices related to tokens, a study to consider the use of blockchain technology to improve election security, and a requirement to report cryptocurrency ransom payments.
Risks to the ecosystem from politics
According to Smith, the passage of comprehensive cryptocurrency legislation is still far out on the horizon. She tells Cointelegraph:
“There’s still a knowledge gap. […] There are too many members of Congress that don’t have enough of a base of understanding. Congress needs to come in and bring regulations to this space. I think we’re several years away from something like that getting traction.”
While trade organizations learn the Washington landscape and work to educate lawmakers, the best-case scenario is that cooler heads prevail. If moderate legislators win the hearts and minds of the U.S. electorate, the investment community is less likely to be stifled by excessive, stand-alone regulatory bills, as there are pro-crypto senators on both sides of the aisle. It’s all but impossible that any bill with overly burdensome regulation would ever find its way out of the legislative committee let alone onto President Biden’s desk.
Moderates would also ensure that fraud, never-ending market volatility and investor manipulation couldn’t become long-term normative behaviors. Sooner or later, a U.S. president will receive meaningful legislation that properly defines cryptocurrency, assigns federal regulatory jurisdiction, implements common-sense fraud controls and helps stabilize the market. A semi-informed public is demanding it. Institutional investors, which are the largest political donors, expect it and industry competitors need it. Eden Doniger, general counsel and chief compliance officer of BitPay, tells Cointelegraph:
“Clear and tailored federal legislation on crypto will create a level and equitable playing field for all companies in the space. […] All of this will boost business and consumer confidence and thus increase adoption.”
On the other hand, if Senators Warren and Cruz, and those who line up behind them, succeed in making cryptocurrency a political wedge issue, the ecosystem could devolve into toxic political sludge, from the inside out. Bipartisan legislative efforts would stagnate.
The congressional staffer says, “If cryptocurrency becomes hyper politicized then it will be harder, in the future, to further craft a regulatory environment for this space.” According to the staffer, legislation will “have to endure a lot of back and forth” depending on which party’s majority is in power at the time. The regulatory environment would sway like a “pendulum.” The crypto community would have a difficult time insulating itself from the noxious effects of hyperpartisanship.
“Surprisingly, Democrats are more resistant to #crypto (than Republicans).” -Nancy Wojtas.
They are not seeing crypto’s potential for massive social good, then, requiring more education. #TokenSummit
— Chris Burniske (@cburniske) May 17, 2018
If right-vs.-left thinking infiltrates the crypto trading community, which it’s already starting to do, and Republicans become pro-crypto while Democrats identify as anti-crypto, the politically agnostic nature of the community could begin to fray and disintegrate. On social media, just about any cryptocurrency room on Clubhouse represents a multitude of demographics. There’s some semblance of unanimity, and, to an extent, everyone gets along. There are certainly heated debates, but they revolve around things like Bitcoin evangelism, specific altcoins or preferred exchange platforms.
Imagine the Clubhouse or Twitter space devolving into Progressive Crypto and Conservative Crypto. Envision Republican and Democratic crypto influencers on YouTube and TikTok. Imagine this bleeds beyond social media and infects makers of blockchain platforms and token developers — right-wing executives vs. left-wing programmers, single-issue cryptocurrency voters vs. multi-issue policy voters vs. crypto-social-ideological voters.
Cryptocurrency has come a long way since 2008, primarily because members of the community share the same goals and are driven by similar innovative aspirations. Yet, the industry is still in its infancy. Surviving politicization from the inside is questionable.
I’m not a Democrat.
I’m not a Republican.
I’m a member of the Bitcoin party
— Dan Held (@danheld) October 10, 2021
The second destructive outcome comes from the outside. The crypto ecosystem is growing faster than any technology in the modern era, yet most people in the United States, and the world, are not involved. If they’re introduced to cryptocurrency by media outlets like Fox News or MSNBC — two networks focused almost entirely on politics — they will only see digital currency matters through an ideological lens. If the general public is corrupted before it fully comprehends the benefits of the technologies, conservatives may simply love crypto while progressives hate it. Independents won’t be able to decide how they feel about it.
Subsequently, cryptocurrency may not be adopted by the average American and might struggle to maintain a foothold in the United States. The innovative ecosystem could idle for years while politicians fight it out at the ballot box and the nation falls well behind other countries with better-informed citizens. The congressional staffer says:
“Crypto is going to thrive with or without the United States. Now the onus is on us to keep these opportunities here.”
Arguably, it’s in the best interest of everyone to start engaging with the political climate in Washington and propping up middle-of-the-road politicians who are working diligently on cryptocurrencies. Otherwise, it’s not going to be fly-by-night corrupt whales or federal regulators pulling the rug out from under the ecosystem, it’s going to be the politically motivated fearmongers in Washington with the loudest voices.