A look at crypto regulations in the United States.
Crypto regulation in the U.S. is like having spicy Mexican food: you know something bad's coming soon, but you don't want to think about it now.
After the countless blowups, scams and rug pulls of 2022, 2023 will be the year of crypto regulation in the U.S.. This article puts together the ultimate guide that covers:
- The most important pro-crypto and anti-crypto politicians in the U.S.
- An overview of the most important crypto bills Congress will pass soon.
- An analysis of the White House stance on crypto.
There is a lot of info in this guide, so here’s a TLDR:
- There’s support for crypto from both parties, but the most vocal supporters are Republicans.
- No fewer than five different crypto bills are currently in Congress, addressing everything from taxation over stablecoins to DeFi.
- Joe Biden’s executive order kicked off a flurry of reports, but most of them contain only vague recommendations.
- The report on the effects of crypto mining drew criticism from the Bitcoin community.
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Who Are the Top Pro-Crypto and Anti-Crypto Politicians in the U.S.?
Crypto has become a topic that moves the needle for American politicians. The industry is now big enough to influence the outcome of elections, and in some counties and states, being pro-crypto matters. The Crypto Action Network, a pro-crypto lobby group, has a scorecard rating Congress members on their crypto stance. Here are a few of the biggest names and their position on crypto.
Pro-crypto
Ron DeSantis
Florida is probably the most pro-crypto state in the U.S., rivaled only by Texas. It's not a surprise that the potential Republican nominee 2024, Ron DeSantis, commented favorably on crypto. Earlier this year, he said state agencies would look into how businesses could pay taxes in Bitcoin in Florida. There have been no updates on that and DeSantis has not made any other explicitly pro-crypto comments. But Florida as a whole is definitely on team crypto.
Francis Suarez
Miami Mayor Francis Suarez is the face of Florida's push to lure the industry to the Sunshine State. He said he is bullish on Web3, which is not surprising considering how many crypto and Bitcoin conferences Miami hosts. The city also launched its own MiamiCoin MIA, though MIA has seen better days. The Miami Heat used to play in the FTX Arena. And Francis Suarez said he considers himself somewhat of a crypto evangelist and that he likes Bitcoin because it "disrupts socialist regimes." He famously also takes his salary in bitcoin. Suarez is sticking by his crypto guns even in the bear market — he called MiamiCoin a “big success,” even though the coin is down bad.
Ted Cruz
Texas Senator Ted Cruz is another outspoken Bitcoin proponent who clearly recognized how supporting Bitcoin can be used for political gains. He said he likes Bitcoin because it's decentralized (which is also why the Left hates it, according to Cruz). He has come out as a proponent of mining bitcoin with flare gas. Cruz also wants Texas to become a crypto oasis and supports a bill against CBDC use for retail.
Cynthia Lummis
Wyoming Senator Cynthia Lummis is another well-known crypto advocate leading a pro-crypto state. She sponsors the Responsible Financial Innovation Act, also known as the Lummis-Gillibrand bill. It addresses stablecoin regulation, banking, the tax treatment of digital assets, and interagency coordination and proposes for crypto to be regulated as commodities. Lummis said crypto needs clear rules, and she was praised by industry figures for her sensible approach and a politician that can be trusted to "get regulation right."
Eric Adams
New York City Mayor Eric Adams has a bit of a friendly rivalry with Francis Suarez, as the two mayors battle out who the bigger crypto advocate is. Adams said he wants to make New York the crypto capital of the U.S. and wants to add crypto to the school curriculum. Adams also took some paychecks in Bitcoin.
Patrick McHenry
Messari named North Carolina Republican Patrick McHenry as someone “with an outsized influence on crypto policy.” He is set to lead the House Financial Services Committee and has already promoted and sponsored bills and proposals establishing clear rules on stablecoins and token disclosures. Messari sees him as one of the key figures to watch in 2023.
Congressional Blockchain Caucus
The Congressional Blockchain Caucus is a bipartisan group serving as a platform for industry and government to study and understand blockchain technology. One of its members, House-majority whip-elect Tom Emmer, has been another outspoken advocate of crypto. He demanded an explanation from the SEC for the Tornado Cash sanctions and slammed the SEC for its "industry sweeps" against crypto. He also urged the Environmental Protection Agency to consider the benefits of crypto mining. And he favors a bipartisan approach to promoting cryptocurrency innovation.
Anti-crypto
Gary Gensler
The SEC Chairman is crypto's favorite villain, a dubious honor that he won't get rid of any time soon, considering his role in the FTX bankruptcy. Gensler famously FUDded ETH after the Merge, saying it could be a security now. Bitcoin is the only cryptocurrency that Gensler acknowledges as a commodity, although he is reportedly open to sharing regulatory responsibilities with the CFTC.
Neel Kashkari
Neel Kashkari is not a Congress member, but the head of the Minneapolis Federal Reserve. He still made the list because of his interesting stance on crypto and CBDCs. Kashkari considers crypto to be nonsense and not useful for payments. But at the same time, he doesn't support CBDCs:
Elizabeth Warren
Elizabeth Warren is another proud crypto hater that has not missed an opportunity to throw shade at the sector. She wants cryptocurrencies to be regulated as securities, called them "toxic" and "magic beans," and maintains that crypto will "ruin the economy." But she's also responsible for an all-time great crypto meme, the "shadowy super coder" responsible for endangering the stability of the American financial system. So shadowy, much coder!
What Are the Most Important Crypto Regulation Bills?
Alright, here's where things get complicated.
No fewer than six different bills are floating around:
- The Virtual Currency Tax Fairness Act
- The Stablecoin Transparency Act
- The Digital Commodity Exchange Act
- The Responsible Financial Innovation Act
- The Digital Commodities Consumer Protection Act
- The Digital Asset Anti-Money Laundering Act
2023 as the year of crypto regulation was not a joke. Let's go through them from simple to complex.
The Virtual Currency Tax Fairness Act
The Virtual Currency Tax Fairness Act aims to provide a clearer framework for the taxation of crypto. It would exempt gains of up to $200. In other words, it would make small transactions tax-free. The bill is currently (read: for the last few months) being considered by the Senate Committee on Banking, Housing, and Urban Affairs.
Prognosis: Not passing anytime soon.
The Stablecoin Transparency Act
The Stablecoin Transparency Act would, according to Coindesk, address issues such as:
- How stablecoin issuers can tap banking services.
- What their reserves must look like.
- Whether they can engage in fractional reserves.
- What sort of licensing stablecoin issuers need.
- What kind of consumer protections must be baked in.
However, it is stuck in the same Senate Committee on Banking, Housing, and Urban Affairs purgatory as the tax bill.
Prognosis: Not passing anytime soon but still more likely to pass than tax-free crypto transactions.
Digital Commodity Exchange Act
The Digital Commodity Exchange Act would regulate cryptocurrency developers, dealers, exchanges and stablecoin providers and give the CFTC the authority to determine rules for cryptocurrency developers and exchanges offering spot trading. However, it was introduced in April 2022 and hasn't moved since.
Prognosis: Keep waiting.
The Responsible Financial Innovation Act
The Responsible Financial Innovation Act aims to clarify regulatory responsibilities between the SEC and the CFTC. It establishes the concept of "ancillary assets," which are tokens that are not securities but still fall under the jurisdiction of the CFTC unless they can be shown to be securities. The act also suggests that ancillary assets that are not sufficiently decentralized will need to file twice-yearly disclosures to the SEC.
This bill has at least had several hearings and may have a better chance of being passed, especially after what happened with FTX.
Prognosis: Could happen, hang in there.
The Digital Commodities Consumer Protection Act
The Digital Commodities Consumer Protection Act is the big one and the one with the most scandals attached to it. It was famously supported by Sam Bankman-Fried, which earned him a lot of flak on Crypto Twitter. But as we know now, everything was much worse than it appeared…
The DCCPA would give the CFTC authority to regulate crypto assets that are considered commodities, such as BTC and ETH. But it would not clarify whether new tokens should be classified as a commodity or a security. The crypto industry also criticized support for this bill because it would inhibit DeFi innovation by:
- Making DeFi platforms "hold customer property."
- Designate compliance officers.
- Grant platforms emergency powers to intervene in trading.
None of that would be possible for DeFi platforms, and why SBF supported the bill is a secret that may or may not see the light of day. However, considering how events unfolded, the bill, still stuck in its introduction phase, will most likely be considered in one way or another.
Prognosis: Something will happen in 2023.
The Digital Asset Anti-Money Laundering Act
The latest addition is Elizabeth Warren’s bill that would introduce KYC rules to wallet providers and prohibit financial institutions from interacting with coin mixers. The bill is so recent that it is not even on the website of Congress yet. Therefore, a prognosis is impossible at this point.
Overall, regulators in the U.S. have faced public anger following the collapse of FTX. Experts are calling for better coordination between regulatory bodies, and there are questions over the credibility of U.S. regulators. The crypto regulation can has been kicked down the road one time too many, but now something will have to happen. 2023 will be spicy in that regard.
What Does the White House Think About Crypto?
In March 2022, Joe Biden released an executive order “to establish the first-ever comprehensive federal digital assets strategy for the United States." He ordered several departments to write research reports to get the White House up to speed on the latest in the crypto industry. The executive order outlined six key priorities:
- Consumer and investor protection;
- Promotion of financial stability;
- Countering illicit finance;
- Leadership in the global financial system;
- Financial inclusion;
- Responsible innovation.
Nine reports have been released since, with one addressing the relationship between the Fed and a possible CBDC and one about regulatory gaps still to come.
Most of the reports are fairly vague, indicating the administration is still mapping the crypto landscape and trying to understand what’s what. But we do have a few indicators of what the next steps will be, based on a fact sheet released by the White House:
The White House on Protecting Consumers, Investors and Businesses:
Regulators should:
- Aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space.
- Monitor consumer complaints and to enforce against unfair, deceptive or abusive practices.
- Collaborate and share data on consumer complaints.
- Lead public-awareness efforts to help consumers understand the risks involved with digital assets.
Nothing really tangible overall.
The White House on Promoting Access to Safe, Affordable Financial Services:
- Encourage the development and use of innovative technologies by payment providers and instant payment systems for their own transactions.
- Create a federal framework to regulate non-bank payment providers.
- Align global payments practices, regulations and supervision protocols, while exploring new multilateral platforms.
- Research to ensure that digital asset ecosystems are designed to be usable, inclusive, equitable, and accessible.
Again, a lot of recommendations, but nothing immediately actionable.
The White House on Fostering Financial Stability:
- The Treasury should work with financial institutions to bolster their capacity to identify and mitigate cyber vulnerabilities and to identify, track and analyze emerging strategic risks.
The White House on Advancing Responsible Innovation:
- Develop a Digital Assets Research and Development Agenda.
- Provide innovative U.S. firms developing new financials. technologies with regulatory guidance, best-practices sharing and technical assistance.
- Track digital assets’ environmental impacts; developing performance standards as appropriate; and providing local authorities with the tools, resources and expertise.
- Establish a standing forum to convene federal agencies, industry, academics, and civil society to exchange knowledge and ideas.
For many of these points, government agencies may want to follow industry leads, not vice versa.
The White House on Reinforcing Global Financial Leadership and Competitiveness:
- Leverage U.S. positions in international organizations to message U.S. values related to digital assets.
- Increase collaboration with — and assistance to — partner agencies in foreign countries.
- Explore further technical assistance to developing countries building out digital asset infrastructure and services.
- Help cutting-edge U.S. financial technology and digital asset firms find a foothold in global markets for their products.
This is one of the more interesting sections. The report implies that the U.S. will use its power in existing institutions to push crypto (and U.S. crypto firms) where it suits national interests.
The White House on Fighting Illicit Finance:
- Congress might amend the Bank Secrecy Act (BSA) and laws against unlicensed money transmitting to apply explicitly to digital asset service providers and raise the penalties for unlicensed money transmitting.
- Continue to monitor the development of the digital assets sector and its associated illicit financing risks.
- The Treasury will complete an illicit finance risk assessment on decentralized finance.
- The Treasury will enhance dialogue with the private sector.
Some more interesting statements here. DeFi will get scrutinized and the government plans to put the screws on AML (even more).
The White House on Exploring a US Central Bank Digital Currency (CBDC):
- The Administration has developed Policy Objectives for a U.S. CBDC System.
- An interagency working group to consider the potential implications of a U.S. CBDC, leverage cross-government technical expertise, and share information with partners.
In other words, the White House is looking into a CBDC and how it could be useful, but hasn't made a final call yet.
Other reports from US departments
Other reports include:
- A report from the Office of Science Technology and Policy looking into the technical aspects of a digital dollar.
- A report from the Justice Department announcing a "Digital Asset Coordinator Network," a group of 150 federal prosecutors nationwide that will deal with crypto crimes.
- A Commerce Department report addressing competitiveness of the US crypto industry.
One report on the climate implications of crypto mining drew a bit more interest from the industry.
Criticism
Coinmetrics co-founder and Bitcoiner Nic Carter published an extensive essay criticizing the White House report on crypto mining. He called the "overall effort" of the report weak and "effectively a literature review" that was put together from mostly anti-PoW sources. His main criticisms were:
- The report presents virtually no new data.
- It ignores contributions of industry subject matter experts.
- It relies on partisan sources but calls for caution on data (hypocrites!).
- It takes a moralistic stance against mining and applies an unnecessarily high standard miners shall meet.
- Its recommendations are useless and counter-productive.
Carter did praise that the report acknowledges the possibility of mining with stranded energy and Bitcoin's contributions to grid flexibility. Overall, though, it does a bad job of assessing the mining industry.
Conclusion
So far, the jury is still out on whether crypto regulation in the U.S. will be sensible. There is a lot of interest and demand for it, so 2023 should be the biggest year for crypto regulation yet. Time to hold public representatives accountable and push for sensible regulation.
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