The U.S. Congress is still wrestling over crypto legislation and some market watchers think it’s unlikely a full regulatory regime will be in place before 2025.
It's time for the state of crypto. The US Congress is still wrestling over crypto and many market watchers think it's unlikely a full regulatory regime will be in place before 2025. Joining us. Now to discuss the state of crypto regulation is the Chamber of Digital Commerce's Chief Policy Officer Cody Carbone Cody. Welcome to the show. Thanks. Good morning, Jen. So good to see you. So good to see you too. Now, we're talking about regulation. We're sitting in February 2024. It seems like not a lot has happened. I felt like we had some momentum last year and I personally feel like we've lost that momentum. Am I wrong? I it's tough. It's an election year and so all minds are set on November. And so when we talk about legislation, we talk about regulation in DC. Crypto is just not top of mind right now. So we got our spot, Bitcoin at ETF S approved earlier in the year. I think the whole industry has taken a little bit of a victory lap on that, but it, it's time to turn our sites back on policy making and I'm expecting a lot in the near term. It's interesting you say that, you know, we're going towards the elections in November, some crypto friendly candidates have dropped out of the race like Vivek Ramaswami. Uh this comes as Republican front runner and former president Donald Trump has called CBD CS dangerous. Talk to me about the role that the election could play in crypto regulation. Well, it's no surprise that, you know, crypto hasn't been top of mind for a lot of the top candidates for former President Trump and President Biden. I think that's changed though. I think we are seeing a wave where there are a lot of single issue crypto voters that are gonna put crypto on the ballot. And so what does that mean for whoever is in the oval office come January 2025? I think crypto is going to have to be top of mind and that will play a part in who they pick to lead certain agencies. So I'm hopeful that especially as Congress is still in somewhat of a standstill and, and that may proceed into, into the future um that we have agency heads who really prioritize getting some regulatory clarity here, Cody. It's interesting you say crypto has to be top of mind. I think everyone in the industry would agree with you and say the same thing. But do voters in America really care about crypto feels like there are a lot of other issues that are more relevant and and maybe seemingly more important to them. How important is crypto to American voters, would you say? I think extremely important. And I think if we don't pay attention to the crypto voter base, um, if you're a candidate right now, it's, it's a bad bet for you. Um, 50 million Americans hold Cryptocurrency right now. That's 2.5 of the entire population of New York State. And so you, if you're a voter in a small district, no matter where you are across the country, you have constituents that care about this issue. And if they're holding crypto, they're super passionate about this issue. It's top of mind for them. So while many Americans may prioritize other issues that are top of mind in Washington, if you're holding crypto, you're one of those 50 million. This is super important for you, especially when it comes down to a choice of is crypto going to exist or not in the United States that affects your livelihood and your wealth. And so I think these crypto voters um are gonna get out there and they're gonna vote and make a difference. I spoke to Wyoming Senator Cynthia Lummis last week, we spoke about uh Stablecoin legislation and she was hopeful that we could see some Stablecoin legislation before the election in November. Do you think that could happen? Fingers crossed. Um I think there's a lot of negotiations that have been happening behind the scenes. Um And that still need to be resolved. You know, Republicans and Democrats have to come together and put out a bill that has bipartisan consensus. That's the only way this is gonna work. I mean, it was the White House and the President's working group back in November 2021. So, you know, almost four years ago now that said, hey, we need stablecoin regulation and so there's a desire, um, people are motivated and if there's one issue that I think can move this year, it's going to be a staple coin legal framework coming out of Congress Cody. Do you have any insight into those negotiations or some of the conversations that have been going on behind the scene? What are some of the sticking points when it comes to stable coins in the US right now? Yeah, there's one hold up. Um And it's the role of the Federal Reserve and the role of the States. And so right now the current product has states having a regulatory say. And so if you are a Stablecoin issuer, especially a non-bank, and you're saying, hey, I like my money transmitter license. I like being regulated by the State of New York or the State of Wyoming or the State of California. The current bill that's out there preserves that however, the Federal Reserve does not like that. They want to have the supervisory and enforcement power over anyone who's going to issue a stable coin. And so a lot of Democrats are in that camp and say, hey, let's forego state regulation. Let's make sure the Federal Reserve has all the say here. And that's the biggest sticking point. So that hasn't been resolved yet. Who has the power, the Fed or the States? And that's gonna, if, until that's resolved, we're gonna be in this, hold up any insight from you on where that could land. Well, I'm hopeful that it lands that we preserve the state pathway and the Fed has a say. So if you're a Stablecoin issuer and you're a non-bank, you could decide, I want to be regulated by the Fed and, or I want to be regulated by the states. Um I think that what's going to happen is at some point if negotiations are not fruitful, um, the state pathway is going to win out. And so at what point does Patrick mchenry, the chairman of the House Financial Services Committee say, you know what I did all I can, I believe that I have, you know, 10 maybe Democrats who support this state pathway, especially those New York State Democrats who like how the bit license has worked and regulated stablecoin issuers. I'm going to move forward and it's not a bipartisan consensus deal, but I like the deal on the table and I'm gonna move forward and I'm gonna keep that state pathway. I think that's how it will ultimately end up. I'm glad you brought up Patrick mchenry because he really seemed to push a lot of this forward. He recently announced that he will be retiring. Do you think that that's going to slow down some of the momentum that's been made? The fact that mchenry is retiring. It's very sad, but I think it's the opposite. I think it's actually going to speed up momentum. He's got, you know, just a few months left until the end of the year and these are his babies, the stablecoin bill, this market structure bill. He wants to be the first one to pass crypto legislation in the House of Representatives. And so when, you know, yes, he's retiring and people are like, oh, maybe he doesn't have as much power. I disagree. I think he has extreme power. I mean, he was the acting speaker for a while there. And so he has extreme influence in the House of Representatives. So I think as he's looking at his last few months crypto legislation is going to be his Swan song. He wants to move this, he's motivated. And so he will make sure that these bills get at least a a vote on the house floor. I also asked Senator Lemi about whether she thinks Sec chair Ger Gs should be replaced. Uh Let's take a listen, I want to get your reaction. My instinct is that Gensler understands this asset class and I just am speculating that his reticence is more political than it is misalignment of understanding of the fundamentals. So the only way to replace it is to get a new president and of course, I support, um, having a, a Republican president. Um, so, uh, we'll just see where, what the public thinks in November Cody. What do you make of Lemus comments there? I think she's exactly right. I think unfortunately, the SEC has been politicized by the current chairman Gary Gensler. If you look at his testimony when he was um looking to be confirmed as SEC chair, he said we need power from Congress. We need delegated legis legislative authority to regulate the Cryptocurrency industry. If you look now, his statements have completely changed. He has done a 180 which says the SEC has all the power. Where do I think that change in tone and rhetoric is coming from? I do think it's politics. I think that he has found allies in the administration and in the US Senate from like Senator Elizabeth Warren, Senator Sherrod Brown, um on the Senate banking committee who do not like Cryptocurrency by any means. And so I think that he is speaking to them, unfortunately, instead of the investors that the SEC is meant to protect and the SEC has been politicized and that has um that has driven the, the crypto tone at the agency. Do you think he has further political aspirations? Do you think he has his eyes on the Treasury? I do, but I don't think he's gonna get it I don't think, I don't think he has enough friends in Washington right now. And so I think if he was up for, uh, confirmation in that position, I think that with the enemies he's made in DC on, on both sides of the aisle, I mean, if you look at a lot of these letters that go to the sec chairman from Congress on how the agency is regulating crypto, there is usually a bipartisan um list of signees on that. So he hasn't made a lot of friends on the democratic side of the aisle and I think it's just would be a headache for the president. Um and the current administration to put him up in such a high, powerful position such as treasury. OK. And we have time for one more. And this week on the show, we've been talking a lot about NFTS and the Chamber of Digital Commerce also hosted an NFT Education Day over on the Hill. Talk to me about the biggest misconception that you found when it comes to NFTS and, and how NFTS are being viewed in Washington. Yeah, this was a super cool day. Uh The first ever NFT Education Day on Capitol Hill. I would say that the one misconception is that everyone just assumes NFTS are one Cryptocurrency or two board Apes. There, there really is no in between. They, they look at NFTS, they hear NFTS and they just think a cartoon JPEG of, of a monkey and I know board apes are more than that. And so when we get up there and we start educating them on the vast utility and applications of nfts. In addition to digital collectibles, like in the real estate industry or for supply chain or in the music industry, I think I started to open up, I would say the one takeaway I have is that um NFT is a dirty word on Capitol Hill. People don't like it like they don't like Cryptocurrency. And I think for the industry, we need to start thinking about the taxonomy of this industry and think if we can use different terms as we start to educate policymakers across DC. Did those two sec enforcement actions come up when you were hosting the Education Day? Oh yeah, I mean that was our momentum for really going up there. We are concerned that if the SEC starts to get involved and as it's trying to regulate the entire digital asset industry, if they come into NFTS, it will really kill the industry. I mean, most NFTS are not financial products at large. They are mostly consumer products. They're digital collectibles, Beanie Babies, which I know has been hot in the crypto streets right now to use as an analog analogy. And so um using that as a motivating factor for Congress to act and to provide some clarity to say, hey, if an NFT looks like this, it is a consumer product and should be exempt from the federal securities laws. That was our, our mission and our message on Capitol Hill, you feel you made an impact? Do you feel some, some momentum was started there? Yeah, it's just a start. We'll, we'll definitely be up there again. Um, but I do think we made an impact and I wouldn't be surprised if we see some NFT legislation in the very near future on Capitol Hill. Cody. Thanks so much for joining the show today. Thanks Jen. That was the Chamber of Digital Commerce's Chief Policy Officer Cody Carbone.