The midterm elections are over. Control of the U.S. Congress is divided. The crypto industry is under new scrutiny after recent company failures and broader market turmoil. In this environment, how should our elected representatives approach the outstanding crypto policy questions when they return to a new session in January?
While the sensational headlines of the past several weeks have led some officials to call for quick action to rein in the industry, the level-headed and judicious path is to proceed deliberately and build on the work, education and advocacy that’s already happened.
Kristin Smith is the executive director of the Blockchain Association, the Washington DC-based trade association representing the crypto industry.
While many on both sides of the aisle bemoan the fact that they do not have full control of Congress, a divided government may in fact be a boon to the crypto economy.
Of the most advanced crypto regulatory bills under consideration by the current Congress, all are bipartisan. While the Digital Commodities Consumer Protection Act needs major changes before moving forward, the nature of its bipartisan creation bodes well for Washington, D.C.’s approach to regulation.
Likewise, the Lummis-Gillibrand bill in the Senate and stablecoin legislation in the House of Representatives have been crafted with bipartisan backing, demonstrating the good faith engagement from lawmakers of both parties on these complicated issues. While serious, disqualifying issues remain, it is encouraging that the divided nature of Congress now reflects the bipartisan approach of major crypto legislation to date.
Of course, moving forward with bipartisan, tailored and fit-for-purpose legislation requires a careful reflection on recent events. The picture is clear: The failure of FTX International is defined by centralization, and a complete lack of basic corporate governance, accounting standards and basic morality. It is not a failure of crypto, its technology or approach to consumer finance.
As our representatives consider legislation in light of FTX's collapse we urge fact finding first to understand exactly what happened. The drive to “do something” is understandably strong, but passing imperfect legislation in the heat of the moment is not the prudent path.
Learning the latter lesson and seeking to punish the crypto-native ecosystem, rather than designing legislation and enforcing current law that would prevent this sort of collapse would be unfortunate. It is easy to criticize FTX and hold it up as a brightly blazing example of the sins at the heart of crypto, while a forensic and rather staid critique of loosely-applied corporate oversight is the right way to understand the crumbling of this derivatives market and exchange.
Congress should recall the policy and legislative response to past banking crises. The fall of Lehman Brothers did not kick off a ban on big banks, rather Congress decided that those banks should be put to more stringent stress tests to get a better sense of the health of their balance sheets.
See also: FTX's Collapse Was a Crime, Not an Accident | Opinion
When the Bernie Madoff scandal unfolded, our elected representatives did not call for banning the hedge fund industry. The downfall of MF Global was further evidence that solid “Chinese walls” between trading and customer deposits should be enforced, not that there was a flaw in the very concept of bonds.
The same approach should apply to crypto: Target bad actors and illicit schemes while working with industry to promote the technology and make the industry more robust and safer for consumers. Crypto is here for good – using the collapse of a centralized exchange to sow doubt over the nature of decentralized finance will not prevent a similar collapse in the future.
As Congress kicks off the 118th session, it should pick up where it left off, carefully and considerately designing bipartisan legislation to ensure the United States remains a home for crypto innovation. While many of the bills under consideration need serious work, the fact that we have a strong platform to get the right results shows that the industry’s education and advocacy is having an impact.
Congress should avoid a knee-jerk reaction to the industry’s recent turmoil and focus on the core tenets of crypto: privacy, decentralization, and financial freedom. That’s a bipartisan message our bipartisan Congress can and should embrace.
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