People who work in the crypto industry are getting more hopeful that new laws that would weaken the U.S. Securities and Exchange Commission will pass this week with strong support from both parties and might even become law before the end of the year.
The Financial Innovation and Technology for the 21st Century Act is expected to be voted on by the House of Representatives on Wednesday. This bill would make it clearer who is responsible for overseeing the crypto industry by giving the Commodity Futures Trading Commission more power over it than the SEC.
Digital asset companies have long said that the SEC’s insistence that they follow traditional disclosure rules is not possible, so this would make a disclosure and registration system that is just right for them.
Davis Polk lawyers wrote in a Monday client letter, “The effort faces an uphill road in the Senate and a possible presidential veto if it gets that far. However, it would be the most important step to date toward establishing a much-needed comprehensive U.S. regulatory framework for digital asset markets.” “The fact that the bill was brought to a vote on the House floor shows how important this issue is to many members of Congress.”
Most experts and insiders think that the bill will pass the House but get stuck in the Senate. However, there is a small chance that Wednesday’s vote will lead to a statement from both parties that can’t be ignored.
One person close to the talks in Congress told MarketWatch, “I don’t think we should give up on the Senate and think they won’t do anything about this before the end of the year.”
Some people are hopeful because the House and Senate voted last week to overturn SEC accounting rules that critics say made it too expensive for banks to store crypto assets like bitcoin BTCUSD, +0.39% or ether ETHUSD, +7.58% for their clients.
There were over 20 Democrats in the House and 12 Democrats in the Senate who voted against the rule. Majority Leader Chuck Schumer of New York was one of these Democrats. That’s what President Joe Biden said he would do, but he hasn’t done it yet.
Biden hasn’t said anything about the FIT-21 bill either. A crypto lobbyist with ties to the Democrats told MarketWatch that this shows that “the Biden administration has realized it doesn’t understand the issue” and the political risks of being seen as anti-crypto before a tough reelection fight.
In the meantime, the bill has a lot of parts that Democrats like. For example, it gives the CFTC more power to regulate crypto spot markets and exchanges, and it makes crypto intermediaries follow rules against money laundering and the Bank Secrecy Act.
Sources say that another argument that has swayed some Democrats is that the current Supreme Court, which has been very skeptical of financial regulators claiming new powers, could decide how crypto is regulated in the future if Congress doesn’t act now.
Expert in financial regulation at the left-leaning Roosevelt Institute, Todd Phillips, made this case in a recent brief. He wrote, “The crypto industry has not-unconvincing legal arguments that are based in history and interpretations of Congressional intent that may persuade this Court, the most conservative in nearly a century,” to side with the industry.
A letter sent to Democratic colleagues on Monday said that powerful Democrats in Congress, like Rep. Maxine Waters of California, who is the top Democrat on the House Financial Services Committee, “strongly oppose” the bill. However, Politico reports that leadership has decided not to try to get people to vote against the bill.
In a statement released Tuesday, Cantrell Dumas, Director of Derivatives Policy at the financial reform group Better Markets, said, “Congress should consider whether this legislation could potentially open loopholes to avoid SEC regulation, similar to how derivatives were not regulated before the 2008 crisis.” This is a worry that many Democrats in Congress share.
He also said, “Legislators should ask themselves if the CFTC’s resources in the bill are enough for an agency that already doesn’t have enough money.” “Adding more duties to the CFTC will definitely and significantly hurt the agency’s ability to do its important jobs that all Americans depend on and benefit from if it doesn’t get enough money.”
The crypto industry wants at least 40 Democrats to vote in favor of the bill. People who work in the industry say that beating that goal will send the Senate a strong message that it can’t ignore this legislation.
Another important goal is to get important Democrats to support the bill, such as Hakeem Jeffries, the Minority Leader of the New York House of Representatives.
Even if both parties vote in favor, it’s not likely that the Senate will take up the bill because Ohio Democrat Sherrod Brown, who is on the Senate Banking Committee, has said he doesn’t support crypto market structure legislation.
An analyst with Capital Alpha Partners named Ian Katz wrote in a Monday client note, “The Senate doesn’t usually take House bills and just vote on them.” “So the Senate might want to look at some kind of crypto legislation at some point, but it probably won’t be this one.”
