Proof of State is the Wednesday edition of Fortune Crypto where Leo Schwartz delivers insider insight on policy and regulation.
Before FTX’s collapse in November, Washington, D.C., was awash with possibilities. There was a draft floating around of a stablecoin bill from the House Financial Services Committee and three promising crypto market structure bills from two key Senate committees and a House committee, all with bipartisan support, with the hope that one might even pass before the end of the session.
Sam Bankman-Fried’s ignominious fall dashed those aspirations. Worse yet, the debacle brought out the worst in D.C., creating a blame game as lawmakers tried to distance themselves from the prodigious donor and retreat to their partisan corners to lick their wounds.
Crypto-skeptical Democrats like Sens. Sherrod Brown (D-Ohio) and Elizabeth Warren (D.-Mass.), who had previously espoused more of an agnostic view, began to take hardline stances against the fraud-riddled sector. Republicans, who had already viewed Securities and Exchange Commission Chair Gary Gensler with suspicion, began to ramp up their ire at the regulator, especially as he lofted enforcement actions against Kim Kardashian and long-deceased projects like Terraform, while still refusing to provide any clarity on the agency’s legal approach to cryptocurrencies.
Congress moves slowly, and it was expected that the first crypto-related hearings this session would be more of an exercise in throat-clearing, while any substantive legislating would take months to restart. Even as March’s mini-banking crisis made it more unlikely that crypto regulation would become a priority on the Hill, lawmakers and aides expressed confidence that sorely needed reform would come.
This week marks the first true test of whether Congress will take a real shot at legislation. With a crypto skeptic at the helm of Senate banking and the House and Senate agriculture committees consumed by the once-every-five-years farm bill, lawmaking will likely originate from the House Financial Services Committee, a Republican-led body that established a digital assets-focused subcommittee this session, signaling its intent to plow forward.
The loudest detractors of Gensler have come from HFS from both sides of the aisle, including chair Patrick McHenry (R-N.C.), majority whip Tom Emmer (R-Minn.), and second-term congressman Ritchie Torres (D-N.Y.). When the committee hosted its long-awaited oversight hearing of the SEC yesterday, with Gary Gensler appearing as the lone witness, the result—as expected—was a circus, with the proceeding stretching over 5 hours (including a recess) and even including a prolonged reference to the Mel Brooks classic Blazing Saddles.
It was hard not to feel pity for both sides. Why would Gensler not settle the question, once and for all, of whether he considered Ether to be a security? Why wouldn’t lawmakers understand that his job is not to keep companies in the United States if he believes they are not compliant with U.S. law?
The committee has a chance to redeem itself today, when it hosts a hearing on stablecoin legislation, just a few days after finally publishing its bipartisan bill, a thoughtful effort that has drawn praise from the crypto industry and both sides of the aisle. Unlike yesterday’s spectacle, today’s hearing has experts invited to provide clarity, not serve as a lightning rod, including New York Department of Financial Services superintendent Adrienne Harris, Circle chief strategy officer Dante Disparte, and former Paxos chief risk officer Austin Campbell. Let’s see if Congress can get back on track.
Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz
