Facing a head-spinning array of new legislative and regulatory action out of Washington, D.C., the crypto industry is reacting the way any sector f
Facing a head-spinning array of new legislative and regulatory action out of Washington, D.C., the crypto industry is reacting the way any sector flush with cash would: It’s throwing money at the problem.
Established trade associations are bulking up their lobbying operations, and individual firms seeking more bespoke treatment are hiring their own representatives from D.C.’s enormous pool of Congress-whisperers and regulator-persuaders.
The crypto industry is late to the game. With the exception of a few well-established trade groups, and some firms that saw the importance of having a seat at the federal table before it became painfully obvious, crypto companies have largely avoided engagement with Washington.
This article is part of Crypto 2022: Policy Week, a look at how regulators and legislators are shaping cryptocurrency and how the industry is fighting back.
As a whole, the industry has suffered from a “short-sighted lack of commitment to, and investment in, Washington,” said Miller Whitehouse-Levine, policy director for the DeFi Education Fund, a new Washington, D.C.-based organization that aims to educate policymakers about the benefits of decentralized finance and governance.
The lack of engagement was partly down to the deep vein of libertarian sentiment running through the crypto world, and partly a result of wishful thinking.
“There’s obviously a pretty anti-centralized authority streak throughout the industry, and the U.S. government is the biggest, baddest, centralized entity in the world,” Whitehouse-Levine said. “There’s just a natural aversion to engaging with it in the crypto industry.”
At the same time, he added, there was a misguided hope that crypto would “fly under the radar” of government regulators, much as internet firms did in the early days of the World Wide Web. “That has not been borne out in any shape or form,” he said.
A rude awakening
It’s difficult to pinpoint a moment when the industry really woke up to the need to have a larger presence in Washington. For some, it was as far back as 2019 when Facebook CEO Mark Zuckerberg faced intense pushback from Congress over the company’s plans to create a stablecoin called libra (since renamed diem). For others, it was in December, when outgoing Treasury Secretary Steve Mnuchin issued a proposed rule that would have barred many anonymous transfers of cryptocurrency.
But for most it was this summer, when the crypto industry was rocked by the news that an amendment attached to a bipartisan infrastructure spending bill would raise $28 billion in taxes from the industry by requiring cryptocurrency “brokers” to report transactions to the Internal Revenue Service. The trouble was the definition of “broker” used in the legislation was so broad it would have included bitcoin miners and software developers working on digital wallets.
The outcry raised by the industry’s representatives in Washington was enough to convince a number of influential members of Congress that the legislation needed to be changed, though a final version of the bill is still pending.
“The infrastructure bill fight made it real for a lot of people who weren’t paying attention to D.C., that D.C. is paying attention to crypto,” said Neeraj Agrawal, communications director at Coin Center, one of the handful of crypto-focused organizations that has been on the front lines of federal policy battles for years.
“The crypto industry as a whole kind of realized [it needs] to beef up lobbying efforts, or policy will be left to congresspeople who maybe don’t fully understand the technology, as evidenced by some of the language that was put into the infrastructure bill,” said Nisa Amoils, a securities lawyer and managing partner of A100X Ventures.
“The infrastructure fight, especially, really woke everyone up,” agreed Ron Hammond, director of government affairs for the Blockchain Association. He described the effort to change the language about brokers in the infrastructure bill as a unifying moment for the industry’s lobbying representatives.
“The core group of subject matter experts and lobbyists just said … ‘we’ve got to get together on this front,’” he said. “We all combined forces to be a big strong voice.”
Stablecoin regulation looms
The recognition that the industry can successfully wield influence on Capitol Hill comes at a time when crypto is facing a slew of new legislative and regulatory challenges.
In addition to the infrastructure bill, the President’s Working Group on Financial Markets is finalizing a set of highly anticipated recommendations that are expected to guide the regulatory treatment of stablecoins. Securities and Exchange Commission head Gary Gensler is taking every opportunity to say he thinks crypto markets belong under the SEC’s watch, and the Federal Reserve is about to release a report indicating whether or not the federal government ought to launch a central bank-backed U.S. dollar…
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