“There aren’t five senators in this body with any real understanding of how cryptocurrency operates,” Sen. Ted Cruz (R-Tex.) said late last year. He said this as an argument that Congress shouldn’t regulate cryptocurrency. In truth, his colleagues’ lack of understanding is why they and relevant authorities should take on the industry with caution and care. Yet a lobbying blitz is underway to encourage a more reckless approach driven by, as is the case of so much in Washington, insider connections.
The Tech Transparency Project recently released a report identifying at least 235 officials from Capitol Hill, the White House, federal agencies, the Federal Reserve and national political campaigns who have moved into and out of the cryptocurrency industry. These hires arrive hand in hand with a push from regulators to figure out how to address the fast-growing sector of blockchain-based transactions — including the executive order President Biden signed last month calling for a broad federal review.
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The aim of the industry lobbying efforts is essentially to preempt restrictive rules, which cryptocurrency boosters say will stymie innovation, with a laxer regime. Already, the industry suffered a defeat when it failed to get a provision requiring brokers to file tax forms to the Internal Revenue Service struck from last year’s bipartisan infrastructure bill. But in the states and Puerto Rico, where the New York Times reports at least 153 pieces of related legislation were pending this year, crypto companies have had more success. Some bills borrow language — even entire sentences — from lobbyist-provided drafts.
The proposals in the states achieve myriad industry aims: exemptions from anti-fraud or anti-money laundering laws, for instance, or tax incentives for what’s known as mining (creating new tokens using massive amounts of computing power). Nationally, agencies are jockeying over which of them should regulate which aspects of the sprawling crypto realm; some in that realm would rather the answer be “none.” The Wall Street Journal reports that the largest U.S. cryptocurrency exchange, Coinbase, pitched a policy blueprint to Congress hoping to avoid oversight from the Securities and Exchange Commission in favor of a special regulator for digital assets.
The so-called revolving door between the world of government and the world of lobbying is obviously far from specific to cryptocurrency. Yet crypto is technical enough to confuse even a digital native — which means that understanding how it works and the potential pitfalls ahead is likely to take some time for legislators and regulators more used to traditional money. They should make sure to move steadily toward figuring out how to fit this creation into the financial system, and resist any pressure to rush toward carving out a separate space for it instead.