The Biden Administration Is Easing Up on Crypto (a Vibes Analysis)

A wave of positive regulatory developments for crypto could be coincidence. Or they could be the Biden Administration reacting to Donald Trump’s recent embrace of the industry.

AccessTimeIconMay 21, 2024 at 5:49 p.m. UTC
Updated May 21, 2024 at 7:09 p.m. UTC

The Biden administration’s stance on crypto appears to be softening. I feel comfortable saying this, despite the yearslong “whole-of-government” onslaught against the industry, due to a few key advancements in recent weeks.

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First, and perhaps most significantly, Monday’s news that the U.S. Securities and Exchange Commission (SEC) may be gearing up to approve spot ether exchange-traded funds (ETFs). This would be a major reversal in fortune for an asset class assumed to be dead-on-arrival, especially considering the securities watchdog has recently been probing prominent Ethereum-related institutions.

While much of this is just speculation, based partially on words heard through the grapevine (i.e. “sources with direct knowledge of the situation”), it is telling that the SEC has asked for amended filings from prospect ETH ETF exchanges on an expedited basis. It would be an odd move if the agency planned to reject these applications outright.

Just yesterday, Bloomberg Intelligence placed the odds of an SEC approval of spot ETH ETFs at 25%. Today, it stands at 75% likely that these products – which would likely draw institutional capital into the second-largest crypto asset by market cap, in the same way bitcoin benefited from its own cluster of ETFs – will launch this year. (The SEC is expected to make a decision on VanEck’s spot ether ETF on May 23.)

Secondly, last week a bipartisan bill called the Deploying American Blockchains Act of 2023 was passed with a margin of 334 to 79 by House representatives. While modest in scope, the bill would enable the Secretary of Commerce, currently Gina Raimondo, “to take actions necessary and appropriate to promote the competitiveness of the United States” in the blockchain industry.

This comes ahead of the Senate’s vote on the Financial Innovation and Technology for the 21st Century Act (FIT21), considered to be the most significant piece of crypto-specific legislation with the greatest likelihood of actually becoming law. As my colleague Nikhilesh De astutely points out:

“House Democratic leaders on the Financial Services and Agriculture Committees told their members that while they oppose the FIT21 bill, they wouldn't actively whip against it – in other words, they essentially told their members to vote how they see fit.”

This is similar to recent votes in the House and Senate to repeal the SEC's controversial Staff Accounting Bulletin 121, which imposed severe capital requirements on crypto custodians and all but foreclosed the possibility of banks moving into the space (and strongly opposed by both the crypto and TradFi communities).

The theory is, when President Joseph Biden vowed to veto the measure to repeal SAB121, he cleared a path for congress members – including prominent Democrats like Senate Majority Leader Chuck Schumer (D-NY) and Finance Committee Chair Ron Wyden (D-OR) – to vote their conscience.

It remains to be seen whether Biden will veto the measure, despite the fact that the independent Government Accountability Office (GAO) said the SEC inappropriately imposed the guidance. However, the important thing here is that sane, bipartisan, crypto rulemaking is possible, despite the opposition of figures like arch crypto skeptic Senator Elizabeth Warren (D-MA).

Speaking of which, Warren may be losing influence in the Biden Administration. Yesterday, Federal Deposit Insurance Corp. Chairman Martin Gruenberg announced he would be stepping down after the Senate Banking Committee Chair, Sherod Brown, called for his resignation.

While the move does not directly pertain to crypto, it is worth mentioning that Gruenberg is a known confidant of Sen. Warren – and their view of crypto is largely cut from the same cloth. Under Gruenberg’s leadership, for instance, the FDIC took a hard line against crypto during the financial crisis in 2023 that brought down three medium-sized banks.

Although it largely cited poor risk-management and incompetent leadership, the FDIC also said Signature Bank’s “association with and reliance on crypto industry deposits” was a major cause for its failure in its report. That same year the agency officially added crypto to its annual report on risks facing U.S. banks and began entering into “robust supervisory discussions” with the firms under its charge.

Further, Castle Island Ventures co-founder Nic Carter considers Gruenberg to be one of the major “architects” of what he called Operation Choke Point 2.0, or a series of maneuvers by the U.S. government to systemically cripple the crypto industry (the name is a callback to the Obama era effort to de-bank unsavory industries). Indeed, following the collapse of FTX, the White House issued its first fact sheet related to crypto, essentially calling for a crackdown.

To be sure, there are a few major caveats to consider here. First of all, Gruenberg resigned under political pressure following a Wall Street Journal report on widespread evidence of sexual harassment at the FDIC. The septuagenarian himself wasn’t accused of harassment, however he did allow a toxic workplace culture to fester – which is why Sen. Brown called for his ouster (which Sen. Warren called “politically motivated”).

All of this is to say that crypto is not a motivating factor here, although some political commentators are looking at the Gruenberg situation as a sign of the Warren faction’s waning influence. For instance, John Deaton, who is challenging Sen. Warren for her senatorial seat this November, said it was “shameful” how Warren “circled the wagons to keep one of her disgraced puppets in place.”

It’s also important to note that Congress is not the White House, and the White House is not the SEC. In other words, there is no real reason to assume that the Biden administration is suddenly telling either Gary Gensler or legislators to, like, take it easy on crypto. These are all discrete events, but they’re all positive developments for crypto.

Regarding the possibility of ETH ETF approval, the going idea is that the SEC was resistant because it wasn’t having productive meetings with prospective issuers. And “the fact that their meetings became more recently productive doesn't necessarily mean there was a policy reversal,” as CoinDesk policy expert Jesse Hamilton said.

But what if there really were a driving force behind all of these developments? What explains the widespread sea change? And why would a Dem-controlled government suddenly become pro-crypto now?

The 100 pound gorilla

“The backdrop to all of this is an election where the Republican party's standard-bearer, former President Donald Trump, has explicitly made an appeal to crypto voters as part of his strategy,” De said.

Indeed, the former president has seemingly intuited that the crypto contingent is something of a well-heeled political force, and has been currying favor. There are a few cynics who argue the billionaire real estate developer is primarily motivated by his bags (Trump has issued several NFT series, and holds a fair amount of ETH and other tokens), but that seems needlessly narrow a view.

The alignment makes perfect sense: Crypto gets peoples’ attention. And Trump likes to get attention. Crypto also gets a certain type of person angry, and it just so happens that these are the same people Trump likes to get angry. Crypto advocates also like powerful people willing to speak positively about crypto. And Trump likes his praise.

Passionate crypto advocates like Messari founder Ryan Selkis (a Consensus speaker, by the way) have been saying for years that the industry needs to organize into a coherent political block. In recent months, this has become more of a reality. Experts say crypto-focused political action committees (PACs) have more influence in Washington D.C. than ever, and are spending tens of millions of dollars across the country to influence elections up and down the ballot.

And while both parties could conceivably claim the “apolitical” crypto narrative for their own, there is something to the idea that the industry’s somewhat contradictory situation of being both rooted in Occupy Wall Street-era populism while also most frequently being associated with the “hilariously rich” is undeniably Trumpian. To some extent, I’m surprised it took so long for Trump to come around to it.

Which gets us to the main point: Why now? It is clear that Trump has come out in support of crypto because it is a wedge issue he can use against his rival, President Biden. While the general public is not likely clued into the nitty gritty politics of crypto regulation, a surprising amount of registered voters hold crypto and have a positive sentiment towards it. In particular, nearly 25% of self-identified independent voters (i.e. the key “swing voter”) have bought crypto. And that number will only increase over time, especially following the launch of crypto ETFs.

On the other side of the equation, because Trump has set himself up as an oppositional figure to the Biden administration’s slow boiling war against crypto (which has literally won over at least a handful of voters who despise his other policies), the easiest way for Biden to solve the issue is to either do a 180 on crypto himself or simply make it less of a problem.

This is compounded by the fact that, while the majority of Americans still do not interact with or care that much about crypto, there have been a series of missteps by regulators that have garnered something almost akin to sympathy for the industry. The biggest bloody nose being the SEC’s handling of approving bitcoin ETFs, which was called “arbitrary and capricious” by an appeals court.

But there is a growing sense that this same cavalier and biased view carries through all of the Biden administration’s crypto efforts. Americans want crypto to be safe and well regulated, they want consumer protections; they do not want arcane debates about whether an asset is a security.

Moreover, it is conceivable that a strong reaction to the industry’s cataclysmic failures in 2022 was politically advantageous but now that prices are climbing again a heavy handed approach seems both like a waste of government resources and potentially overreaching. This is to say nothing of the fact that provoking the crypto industry always garners backlash from insiders.

Again, all of this is mere speculation: there is no direct evidence that Biden is reversing course. It is significant that a major piece of crypto legislation has made it this far, that ETH ETFs being approved is back in play and that Trump has won over the “single issue” crypto voters. Consider this a vibes analysis, a theory that can never be proven but can grow stronger if more positive advancements like this happen.

At the end of the day, politics, like crypto, really is all about vibes.


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Daniel Kuhn

Daniel Kuhn is a deputy managing editor for Consensus Magazine. He owns minor amounts of BTC and ETH.