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The cryptocurrency world is hoping for breakthrough breakthroughs this week in Washington
The cryptocurrency world is hoping for some gains this week in Washington as it pushes for a new regulatory framework and new products that could expand its mainstream appeal.
The House will vote on legislation Wednesday that would provide the kind of regulatory oversight the industry wants.
Separately, investors are hoping the Securities and Exchange Commission is close to approving the first exchange-traded funds that would invest directly in the cryptocurrency ether (ETH-USD).
The key change proposed by the new legislation – known as the Financial Innovation and Technology for the 21st Century Act, or FIT21 – is that it would establish the Commodity Futures Trading Commission as the primary regulator of digital assets.
There would be clear divisions over what the CFTC would regulate and what would fall under the purview of the Securities and Exchange Commission, a longtime foe of the industry that has cracked down on traders with enforcement actions and lawsuits.
Rep. Patrick McHenry, R-N.C., a major sponsor of legislation that would offer a new regulatory framework for the cryptocurrency industry. (Tom Williams/CQ-Roll Call, Inc via Getty Images) (Tom Williams via Getty Images)
It would also establish consumer protections and prevent the kind of commingling of customer funds that played a role in the destruction of cryptocurrency exchange FTX in late 2022.
The industry has lobbied hard for this regulatory framework, which it would prefer to aggressive SEC enforcement.
“[This] marks the official end of the underdog narrative that cryptocurrencies are not here to stay,” said Cody Carbone, chief policy officer at The Digital Chamber, a cryptocurrency lobbying group.
The bill faces opposition from some Democrats. Even if it passes, the road in the Senate could still be uphill.
“What the Senate will see is a total vote,” said Republican Rep. Patrick McHenry, the primary sponsor of this legislation. “I think this should cause members of the Senate to look at this issue with fresh eyes.”
The price of one specific cryptocurrency, ether, is rising this week as investors become increasingly confident that the SEC will give the green light to invest in ether ETFs.
The SEC in January approved ETFs that invest directly in bitcoin (BTC-USD), a development that has broadened mainstream acceptance of the world’s largest cryptocurrency. Now investors are hoping the same will happen with the second largest cryptocurrency.
“Given the ‘behind the scenes’ political drama, the approval will be seen as significant regulatory relief for the industry,” Bernstein analysts said in a note.
The cryptocurrency world is hoping for the same outcome from legislation expected to be introduced in the House on Wednesday.
About 60 crypto companies and industry organizations, including Block, Coinbase (CURRENCY), Circle, Kraken and Paxos sent a letter to House leadership last week in support of the bill.
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“The bill is well written,” said Kara Calvert, head of U.S. policy at Coinbase. “It’s the first bill that explicitly contemplates how to think about decentralization, how to think about something that goes from looking like a security to looking like a commodity.”
Calvert says the bill allows regulators to focus on creating rules for centralized tokens, allowing for more targeted management of assets instead of fragmented regulation through enforcement.
Republican lawmakers say this legislation will bring clarity to a key issue: whether a given digital asset is a security or not. The SEC has argued that many cryptocurrencies are actually securities and therefore should be supervised by the agency.
But most House Democrats – led by Maxine Waters, a member of the House Financial Services Committee – oppose the bill.
Waters held a briefing for Democrats on Monday, urging them to vote against the bill. He warned that changes made to the bill since last summer would now result in mass deregulation of both cryptocurrencies and some traditional securities.
In a letter reviewed by Yahoo Finance and sent to Democratic House members, Waters and House Agriculture Committee ranking member David Scott wrote that the revised bill would “move most cryptocurrencies and some traditional securities into a regulatory vacuum, with no primary regulator and virtually no laws or regulations.”
Democratic Congresswoman Maxine Waters opposes new cryptocurrency regulation bill. REUTERS/Elizabeth Frantz/file photo (Reuters/Reuters)
The end result, the letter states, would be a “proliferation of fraud that will have devastating consequences for consumers and investors.”
Democratic lawmakers argued that the bill’s definition of “digital assets” and addition of “contractual investment assets” would effectively deregulate most cryptocurrencies by removing them from the purview of the SEC.
They also fear that by making the CFTC the primary regulator, consumers and investors will not be afforded the same types of protections that the SEC enjoys.
It is unknown how much opposition the bill will face in the Senate.
Senate Banking Committee Chairman Sherrod Brown (D-OH), who has prioritized cracking down on cryptocurrencies used for money laundering, has so far remained silent on the House’s crypto legislation.
“We need to ensure that crypto platforms play by the same rules as other financial institutions,” Brown said in a statement last month. “And we need to ensure we have the tools to crack down on illicit finance with digital assets, just as we would with any other asset.”
McHenry said he hoped the outcome of Wednesday’s vote would get the attention of senators.
“We will drive like crazy to get everything we can out of this Congress,” McHenry said when it came to passing cryptocurrency policy.
“There is bipartisan support for this initiative. But whatever happens in this Congress, this policy is inevitable and will happen, just as the role of cryptocurrencies is here to stay.”
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