Proof of State is the Wednesday edition of Fortune Crypto where Leo Schwartz delivers insider insight on policy and regulation.
As anyone who gained their civics education from Schoolhouse Rock should know, it’s not easy to pass a law. For the crypto industry, last year seemed like a golden opportunity. There were enthusiastic legislators, bipartisan support in multiple key committees, and even an affable young founder willing to educate lawmakers and fill their pockets with donations.
The difference a few months can make. After FTX blew up in November, those key committees spent their last month before recess going through the five stages of grief. When Congress returned in January, all the oxygen in the House was consumed by a bruising fight to appoint a speaker. And as the tentacles of FTX’s contagion unfurled, other D.C. players took advantage of the ensuing power vacuum, from the Securities and Exchange Commission's Gary Gensler to banking regulators.
There have been signs of a crypto spring in Congress, from an understated hearing in the Senate Banking Committee to a minor bill proposed in House Financial Services on Tuesday that would address the controversial definition of a crypto “broker.” Still, it‘s hard to shake the sense the crypto world has missed its best chance on the Hill to obtain legislation, be it for stablecoins or market structure.
But as regulators continue to gather strength, lawmakers are finally starting to show signs of life on the crypto front, with this week emerging as the most eventful so far this year. On Tuesday, Senate Banking hosted Fed Chair Jerome Powell, where he touched on banking regulators’ wariness toward crypto risks while warning against regulation that could “stifle innovation,” and the Senate Committee on Environment and Public Works hosted a hearing on crypto mining.
Wednesday will see Powell in front of a Republican-controlled House Financial Services and CFTC Chair Rostin Behnam in front of Senate Agriculture, and then Thursday will be the hallmark event: a crypto-focused hearing at House Financial Services entitled “Coincidence or Coordinated? The Administration’s Attack on the Digital Asset Ecosystem.” The committee, which includes crypto ideologues including Tom Emmer (R-Minn.), will surely be out for blood after aggressive moves from the SEC and banking regulators.
“I think you’ll see a reiteration of Congress’s role there,” said Ron Hammond, the director of government relations at the Blockchain Association. “Legislation is the ultimate goal here.”
Given the divided Congress, FTX fallout, and shifting priorities, we’ll likely see preferred bills coming from different sources. While the Senate Agriculture’s Digital Commodity Consumer Protection Act seemed like a favorite last year, the committee is still trying to shed the memory of Sam Bankman-Fried, and as Hammond pointed out, it will have its focus on the once-every-five-years farm bill, along with its House counterpart. The Senate Banking Committee, which produced a DCCPA alternative last year, now seems to be focused on money laundering legislation that has sparked an outcry from the crypto industry.
Instead, the House Financial Services Committee seems to have the early advantage to advance crypto legislation. That is, if it's not too busy lobbing bombs at Gensler. The SEC chair, sadly, will not be in attendance at its blockbuster hearing on Thursday.
Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz
