Our industry seeks to revolutionize many of the most important and regulated functions of our society. Due to that ambition, no other industry of comparable size and age has so quickly captured the focus of policymakers and regulators.
This attention creates unique challenges and opportunities. Policies enacted in the coming years related to securities laws, anti-money laundering and know-your-customer requirements, market integrity and taxes could smother our nascent industry, or they could lay the foundation for a flourishing and vibrant cryptocurrency and blockchain economy.
For example, the Financial Action Task Force, an international financial surveillance standards-setting body, has signaled that some of its members may be seeking to restrict peer-to-peer cryptocurrency transactions and the use of un-hosted wallets. Eliminating or restricting individuals’ ability to transact directly with one another would undermine the fundamental innovation of cryptocurrencies and turn them, in essence, into yet another speculative asset class.
On the other hand, legislation in the U.S. Congress such as the bipartisan Virtual Currency Tax Fairness Act, which would exempt from an individual’s taxable income any gain resulting from a personal transaction using virtual currencies so long as the gain is less than $200, would remove a significant barrier to the wider adoption of cryptocurrencies.
Our team at The Blockchain Association works to ensure that lawmakers and regulators see the industry for what it truly is: the future. And since we founded two years ago, there have been a number of positive regulatory developments for our industry.
They include the bipartisan Token Taxonomy Act, which would exempt certain digital tokens from U.S. securities laws; Securities and Exchange Commissioner Hester Peirce’s Safe Harbor proposal would exclude certain tokens from the definition of a security under U.S. law for three years; and the Office of the Comptroller of the Currency’s (OCC) recent interpretive letter, which opens the way for national banks to provide custody services for cryptographic assets and eliminates ambiguity inhibiting broader institutional adoption of cryptocurrencies and blockchain-based services.
However, these bright spots should not obscure the seriousness of several big challenges looming on the horizon. How do we secure the progress already made and combat threats to the potential of the industry?
Some in the crypto world, based on a general aversion to anything centralized, view engagement with regulatory agencies and members of Congress as anathema to the spirit of permissionless networks. This approach is a losing one. The public policies that we need for crypto to thrive cannot be achieved if our industry is unwilling to unite and work with the government. If men were angels, government regulation would be unnecessary.
More established industries have long recognized that working together in Washington, even with their most vicious competitors, is an essential component of their success. Do Coke and Pepsi like collaborating in D.C.? They do work together, and not because the sugar has gone to their heads, but because they are more likely to get what they want from the government by combining their powers. Other industries, like Big Tech, have learned the hard way that robust engagement with national regulators is necessary to maintain and grow their market positions.
For crypto to reach its true potential, we likewise must win looming policy debates in Washington by expanding our base of support and being better prepared for an ever-changing political environment. To put it bluntly, there are many who see anything to do with cryptocurrency as a scam, a tool for terrorists, or most mildly: an unsound investment. This sentiment is embodied by Rep. Brad Sherman’s diatribes against crypto. In 2019, he called for an outright ban of cryptocurrencies, noting: “It is the announced purpose of the supporters of cryptocurrencies to take th[e] power [of the U.S. dollar] away from [the United States].
On the other side of the debate, the U.S. crypto and blockchain industry does have a growing stable of champions. Reps. Tom Emmer, Darren Soto, Warren Davidson, and David Schweikert are only a few of many elected congressional representatives who have recognized the potential of cryptocurrencies to transform our financial system for the better. Regulators including Brian Brooks at the OCC and the SEC’s Peirce don’t need to be convinced that crypto has a role to play in our economy.
See also: Hester Peirce - Tell Me How to Improve My Safe Harbor Proposal
To maintain and grow that base of support, the responsible and compliant leaders of our (relatively tiny) industry must set aside old rivalries and speak with one united, forceful voice. There are some that point to crypto’s decentralized design as a reason to think it is essentially impervious to regulation. This is not true, and plays directly into the perspective of congressional members like Sherman. By working together and cultivating more champions, crypto can win over Washington.
The next few years will be pivotal. This is not the time to narrow our view to issues that matter only within our wonderful, rowdy bubble of an industry. Nor is it the time to go at it alone and put rivalry over policy objectives. Members of Congress and key regulators have a lot on their plates. The only way to get their sustained, engaged attention is to speak with a voice loud enough that they can’t ignore what’s being said.
Let’s learn from the success of other industries in shaping positive policy outcomes and not be left sitting quietly on the sidelines in the fight for the future of our industry.