Blockchain Association policy head Ron Hammond said it "can't be stated enough" how much damage Sam Bankman-Fried did to crypto's cause.
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As Democrats and Republicans roll back into Washington, D.C. to ring in the 118th Congress, two things are clear.
First, it's going to be a tremendously dysfunctional session. Start with a GOP-controlled House of Representatives and Democratic Senate, stir in a GOP so divided it can't even elect a Speaker of the House, and then add in potential criminal charges against former President Donald Trump, and you've got a recipe for either disaster or paralysis.
Which might not be a bad thing for the crypto industry. In the words of Blockchain Association Director of Government Affairs Ron Hammond:
"The crypto industry is in the crosshairs of Congress after the FTX fallout."
The collapse of the second-largest cryptocurrency exchange in an alleged morass of fraud so massive that its disgraced founder Sam Bankman-Fried has been called crypto's answer to Bernie Madoff will be the only story Congress is likely to hear for quite a while.
With one million customers having lost billions of dollars, and prosecutors alleging Bankman-Fried drained their assets to prop up his failing Alameda Research trading firm, things are "bad" for the crypto industry, Hammond wrote in a Jan. 3 Twitter thread. He said:
"It can't be stated enough how much damage SBF did to the industry's reputation in DC. Trust has eroded. The contagion is still playing out. The skeptics are growing. The 'crypto savior complex' continues to fail in DC."
The industry's biggest problem may be the many of the political players in D.C. "equate FTX with the entire crypto industry," Hammond said.
Among other things, Bankman-Fried was far and away the highest-profile crypto CEO in D.C, and many members of Congress found themselves returning large donations under "an onslaught of negative press."
That was not the only cause of this thinking, he said, pointing to the other trio of crypto disasters that defined 2022: The collapse of crypto lender Celsius; the failure of hedge fund Three Arrows Capital that sent a wave of bankruptcies through other crypto lending firms; and the bank-run-style panic that brought down the the UST algorithmic stablecoin and its LUNA partner token.
However, he added, FTX "seems to be the straw that broke the camel's back as many are calling for action."
Among other things, that means that congressional focus on an FTX investigation will likely push back action on stablecoin regulation, even though "it is still top of mind for many," he said.
Regulation Is Coming
One possibility, Hammond said, is that the scale of the disaster may push comprehensive legislation through the badly divided Congress.
Pointing to existing or in-progress legislative "proposals like Lummis-Gillibrand and McHenry-Waters," Hammond said it is possible that FTX will spur "once-in-a-decade legislation. He pointed out:
"Dodd-Frank, Glass-Steagall, Sabarnes-Oxley — these were all major bills passed after a financial crisis or serious scandal… These historic regulatory bills though take a lot of political capital to move and nothing increases the chance of passage like a crisis."
On the other hand, on top of the current, broader dysfunction of U.S. politics in general and a brewing internecine battle within the Republican party, there is the "unique dynamic" of a split Congress to contend with, Hammond said.
He pointed to the new chairman of the House Financial Services Committee, Republican Patrick McHenry, a crypto supporter, and the returning chairman of the Senate Banking Committee, Democrat Sherrod Brown, who is deeply skeptical of the industry. Hammond said:
"Both have nearly polar opposite views on crypto and it is hard to see a situation [in which] they can agree. It is possible, but will be tough."
The House and Senate Agriculture Committees, which have focused on crypto oversight by the Commodity Futures Trading Commission (CFTC) may be a more likely source of legislative agreement than the Securities and Exchange Commission-focused finance and banking Committees. Hammond added:
"Smaller bills like stablecoins and spot market regulation have a chance of moving this year, but will likely need to wait till the dust settles on FTX both in the courts and the congressional hearings."
The Silver Lining
One thing the crypto industry does have going for it is a far deeper policy, lobbying and advocacy bench than it did two years ago, Hammond said.
"The industry has done a great job realizing this is a crucial time in Congress and is putting in resources even amid the crypto winter."
From a group of less than a dozen people from Coin Center, the Blockchain Association, Coinbase and a few others, crypto now has "become a network of 100+ policy experts," Hammond said.
"These people and the knowledgeable Hill staff make me optimistic for 2023!"
