Congress needs to step up on crypto, or Biden might crush it
Recent developments both domestically and abroad have finally catalyzed the Biden administration to take the long-delayed step of engaging on the many regulatory issues surrounding cryptocurrencies and blockchain technology.
One of the most promising economic innovations since the internet, the market cap of cryptocurrencies is now over $2 trillion and there is a growing consensus that the technology is here to stay. What the industry needs — and the American economy would benefit from most — is a partner to help develop a comprehensive regulatory framework that would cement our country’s role as the leader in this emerging field.
Unfortunately, the Treasury Department has decided to eschew such collaboration and go in a different direction. They are instead leading a closed-door effort with the Biden-appointed heads of financial regulatory agencies to draft recommendations on how the administration should crack down on digital assets.
These bureaucrats misguidedly appear to believe they are heroically preventing another 2008 economic meltdown. Cryptocurrencies are being wrongly posited as the new sub-prime mortgage “toxic asset,” as if this innovation is some sinister invention by Wall Street to bilk the public. By seeking clarity while working under this false premise, they will produce heavy-handed regulation that will drive the best innovators overseas.
The fact is that the leading American start-ups in the enterprise blockchain space have been trying for years to work in good faith with regulators — especially the Securities and Exchange Commission (SEC) — to set rules that guard against fraud and criminal activity but that also allow legitimate companies to bring their innovative and beneficial products to the marketplace. Instead of being invited to engage in transparent rulemaking or public engagement to reach clarity, these startups have been sued, subpoenaed and maligned. The SEC under two successive administrations has been particularly unconstructive, practicing regulation by enforcement as its only reliable means of dialogue with crypto companies. Sadly, the Biden administration is signaling it will double down on this approach.
The biggest SEC enforcement action to date against a crypto company demonstrates how this is the wrong approach. Last December, the agency filed a $1.3 billion lawsuit in the Southern District of New York against the U.S. payments software company Ripple Labs. The complaint alleged that the digital asset Ripple uses in its cross-border payments product for banks, called XRP, has been an unregistered security for the last eight years. No fraud is alleged, but the company was expected to have known that XRP was a security long before the agency itself did, applying a 75-year-old judicial test that never contemplated this technology.
Ripple’s defense has exposed the lack of clear rules that these companies face, showing how the SEC provides contradictory and incoherent guidance on what makes a digital asset a security. The record revealed that one of the company’s rivals, Ethereum, apparently had better access to top SEC officials through personal connections and obtained a regulatory free pass for their token despite it appearing more like a security than XRP. Meanwhile, Ripple already appears to be heading overseas. Its products are being adopted by hundreds of foreign companies, helping them to be far more competitive against our own. Similar innovators are following them out.
Imagine if the federal government had sat down years ago with U.S. crypto companies and adopted a set of clear rules that battled fraud, safeguarded consumers, laid guardrails on extreme volatility and nurtured innovation. We did just this in 1997 for e-commerce with a broad bipartisan effort that embraced American ingenuity rather than disparaged it. The result was a U.S.-led global economic revolution.
With the Biden administration heading in the wrong direction on crypto regulation, Congress urgently needs to step in. This shouldn’t be a partisan issue, but more a debate about the future of American innovation. The administration’s way forward indicates that it will maintain the status quo that has jeopardized the future of our domestic crypto industry, so the Legislative Branch must assert itself and defend the economic interests of the next generation of American consumers and businesses.
More Members of Congress need to join the bipartisan coalition led by Reps. Patrick McHenry (R-N.C.), Tom Emmer (R-Okla.), Ro Khanna (D-Calif.), Warren Davidson (R-Ohio), Darren Soto (D-Fla.) in the House and Sens. Pat Toomey (R-Pa.), Ron Wyden (D-Ore.), Cynthia Lummis (R-Wyo.) and others in the Senate. Together, they need to urge hearings on legislation that will achieve the same outcomes as the 1997 e-commerce regulatory framework.
If the Democratic leadership makes the mistake of adopting the Biden administration’s hardline stance against innovators, then the Republicans should run on defending crypto in the 2022 elections. Action must happen soon. Otherwise, the Biden administration’s enforcement lawyers with unlimited time and resources will make it impossible for blockchain enterprise companies to do business in America and will deprive our country of our leadership role in this inevitable technological leap forward.
George Nethercutt Jr. is the former Republican Congressman from the 5th District of Washington, and founder and chairman of The George Nethercutt Civics Foundation. He served on the House Appropriations Committee and House Committee on Science, Subcommittee on Space and Aeronautics.