As House Republicans embark on a new cross-committee approach to solve jurisdictional overlap that has hampered cryptocurrency bills, a partisan divide may be the next hurdle that legislation addressing the sector needs to clear.
House Financial Services Chairman Patrick T. McHenry, R-N.C., and Agriculture Chairman Glenn “GT” Thompson, R-Pa., said their panels would work together on cryptocurrency legislation in what would be the most substantial cross-committee collaboration on the issue to date.
Both committees claim jurisdiction over digital assets, and each oversees one of the two regulators vying for control of the sector.
“Two committees working hand in hand on a joint legislative product like this is unprecedented, and I believe it vastly increases our chances of getting it right,” said Rep. French Hill, R-Ark., chairman of the Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion.
Cryptocurrency is in some ways a reflection of the technology sector generally. Lawmakers have given it plenty of attention in recent years but can’t agree on legislation to address risks. Members of both parties celebrate the innovation but also fret over companies that can appear indifferent to the risks and harm they cause. And both technology and cryptocurrency companies have deep pockets.
“Crypto firms, like other tech companies before them, must recognize that they are not exceptional; they need to comply with the laws of the land,” said House Financial Services ranking member Maxine Waters, D-Calif., at a subcommittee hearing last week.
House Republicans say they are ready to collaborate across committees, but Waters and other Democrats are increasingly skeptical congressional action is merited, particularly after the high-profile collapse of cryptocurrency companies, including FTX.
“Despite what those across the aisle may say, we do not need to create an entirely new and special framework for crypto — we already have one,” Waters said.
House Financial Services Democratic leaders didn’t rule out working with Republicans on legislation to address cryptocurrencies but said the focus should be on closing gaps in existing regulation, not creating a new regulatory framework out of whole cloth.
“There’s always room to work on something. I’m not quite sure we’re going in the same directions, though,” said Rep. Stephen F. Lynch, D-Mass., ranking member of the digital assets subcommittee. “We don’t want to put the imprimatur of legitimacy over some very risky practices.”
‘Careful coordination’
Still, Republicans are plowing ahead with their cross-committee approach, with some hoping for bipartisan engagement. The two panels kicked off the process with simultaneous hearings in each of their digital asset subcommittees, and this month they will hold a joint hearing on closing regulatory gaps.
Hill said working with House Agriculture allows the committees to establish a regulatory framework for cryptocurrencies whether they are securities, commodities or something else.
“Careful coordination with the Ag Committee allows us to move legislation in the two committee jurisdictions that’s complementary, that outlines a regulatory framework for digital assets that reflects either in the security space or the commodity space, the exchange and dealing market structure space, and then finally, a common approach to digital assets that might not be either,” Hill said.
Legislation should address whether a digital asset is a security, commodity or something else, establish disclosures tailored to cryptocurrencies and provide for regulation of intermediaries, particularly trading platforms, he said.
The question of whether cryptocurrencies should be considered securities or commodities has complicated jurisdiction over the sector both for regulators and the congressional committees that oversee them.
Securities and Exchange Commission Chairman Gary Gensler has said most digital assets are likely securities and has urged issuers and the intermediaries that facilitate transactions to register with the agency and comply with its rules for traditional financial entities.
Meanwhile, the Commodity Futures Trading Commission has said bitcoin and ether, the two biggest cryptocurrencies, are commodities. The CFTC, overseen by Agriculture committees, regulates derivatives and can intervene when there is fraud or manipulation in the underlying cash markets, but it doesn’t have direct control over spot markets.
CFTC Chairman Rostin Behnam has asked Congress to pass legislation that would give the agency control over cryptocurrency spot markets.
The dueling jurisdictions have at times complicated the consideration of cryptocurrency legislation. McHenry and Thompson’s effort is the first time leaders of both committees have formally agreed to collaborate on cryptocurrency legislation. In the past, rank-and-file members of the two panels and their Senate counterparts have cooperated on legislation, but bills largely failed to gain traction in committee.
Rep. Dusty Johnson, R-S.D., chairman of the House Agriculture Subcommittee on Commodity Markets, Digital Assets and Rural Development, praised the “nearly unprecedented level of cooperation and collaboration” between the two committees at a late April subcommittee hearing that ran simultaneously with Hill’s.
“This is a town where people very much like to fight over turf and where egos can sometimes get in the way of progress,” Johnson said. “Blockchains and digital assets may not be as revolutionary as some claim, but I don’t believe that every digital asset is a scam or a waste of time.”
‘Bipartisan engagement’
Early buy-in from panel leadership makes it more likely cryptocurrency legislation can advance through committee and even pass the House, but whether it makes it into law will depend on getting Democrats on board, especially in the Senate.
Hill and others are hopeful Democrats will engage in the effort.
“I believe that we still will have good bipartisan interplay as we have these hearings, we have the roundtables, we discuss potential bill text in and around both the stablecoin discussion draft and future market structure discussion draft,’ Hill said. “So I anticipate bipartisan engagement.”
Rep. Warren Davidson, R-Ohio, said there may be interest from rank-and-file Democrats on the committee even if leaders are leery.
“There are Democrats who are great on this issue,” he said.
Democratic leaders on the House Financial Services and Senate Banking committees have rejected the need for a new comprehensive framework to govern cryptocurrencies, insisting, like the SEC’s Gensler, that the assets are covered by existing law.
“Digital asset companies often claim that their technology is incompatible with existing law and regulation when in reality it may be simply that their business models are incompatible with existing law,” Lynch said.
He, Waters and others have said they would be open to narrowly tailored legislation to close specific gaps in regulation.
“To the extent there are actual gaps in our laws, such as limitations on the SEC’s reach overseas, we should focus on those and not on creating more complexity through a whole new regulatory framework,” Waters said.
Her stance is in line with statements from Senate Banking Chairman Sherrod Brown, D-Ohio, but other Democrats are more amenable to the need for more comprehensive legislation.
Senate Agriculture Chairwoman Debbie Stabenow, D-Mich., last year introduced with ranking member John Boozman, R-Ark., a bill that would grant the CFTC jurisdiction over bitcoin and ether spot markets and require exchanges to register with the agency. The bill, which was closely associated with Sam Bankman-Fried, the indicted former CEO of FTX, has not been reintroduced this Congress.
Junior members on the House Financial Services Committee are also more open to congressional action on cryptocurrencies than their leaders. Rep. Wiley Nickel, D-N.C., a freshman, said he’s still trying to understand the different perspectives on the issue.
“I think there’s a role for innovation. I hate to see technology moving offshore,” he said in an interview. “The honest answer is I’m still trying to figure out what the best approach is for my constituents. But as someone who’s 47, I’m a lot younger than most people in Congress and trying to represent a younger group of people in the country who want to have options and be able to do what they want with their money.”
Rep. Ritchie Torres, a New York Democrat on Financial Services, said Democrats took the wrong lesson from FTX.
“In a rational world, we would see FTX as underscoring the need for legislation. And I worry that instead of urgency around legislating, we’re likely to see more congressional inertia, the same inertia that led to FTX in the first place. It seems like the gulf is much wider than it’s ever been,” he said of the two parties.
“If we’re not here to legislate, then what are we here for?” Torres said in an interview. “This is nothing more than a glorified academic debate without a legislative outcome in the end.”
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