The proposed legislation also would take the U.S. out of the algorithmic stablecoin race forever. This, presumably, is in reaction to Terra’s $40 billion LUNA debacle.Yet, it overlooks the success (to date) of Frax.finance. Is there a baby being thrown out with the bathwater?
Crypto clearly is going mainstream. The drama of the recent bust cycle in the recurring boom-and-bust in crypto prices provided a dramatic backdrop to the introduction of the Lummis-Gillibrand Responsible Financial Innovation Act, laying out a comprehensive regulatory framework for cryptocurrency.
Its introduction received extensive fanfare in the media.
Adelle Nazarian is the CEO of the American Blockchain PAC, which protects innovation in blockchain and digital assets in the U.S. and opposes legislation that limits the growth of crypto assets.
Todd August White is Managing Partner of Rulon & White Governance Strategies and the founder of the American Blockchain PAC.
Don’t worry, this column won’t go too deep into the weeds. For specifics, see the official section by section overview and commentary by Sen. Kirsten Gillibrand (D-N.Y.) at Medium.
At the risk of sounding a little too partisan, this legislation heralds the acceptance of cryptocurrency. It won’t be implemented this year, though.
Almost all political junkies think that this November will see a complete reshuffle of the congressional deck. As a result, the future of the measure is likewise uncertain.
Additionally, this legislation – while technically bipartisan – was introduced with just two sponsors. Neither dominates even one of the four committees of jurisdiction (agriculture, on which Sen. Gillibrand serves; banking, on which Sen. Cynthia Lummis (R-Wyo.) serves; intelligence; and finance) which it will have to navigate to get to the floor.
Much less, there is no indication that it will command a 60-vote majority to overcome the difficult filibuster barrier. No mulligan is possible even with a simple majority. The left already complains that regulations are not strict enough. The status quo would be preferable to this law, according to the Center for American Progress’ criticism.
Read More: Yellen Call for ‘Responsible’ Crypto Innovation Is Right
However, the majority of Republicans will probably view it as excessive regulation. Republican House approval and a Biden signature should not be taken for granted, even if Senate passage is assured.
The cryptoscenti are appreciative of having something with which to work that is finally bipartisan. Many advocacy organizations want to continue to be popular with the sponsors. As a result, the majority of crypto supporters are too political to list all the difficulties. So let’s change the code now.
This law does constitute a genuine rite of passage: Ms. Crypto travels to the capital!
Theoretically, a huge step up for cryptocurrencies! The best yogi in America, Yogi Berra, once observed, “In theory, there is no difference between theory and practice, but in practice, there is.”
In actuality, there are many important things that must be handled.
Unlikely passage
Let’s celebrate how the legislation’s debut included a marquee appearance by both Senate sponsors at Washington Post Live’s “The Evolution of Money: Cryptocurrency Regulation.” That policypalooza also featured the Rostin Behnam, chair of the Commodity Futures Trading Commission (CFTC); Dante Disparte, chief strategy officer and head of global policy at Circle; and Tomicah Tillemann, global chief policy officer at Haun Ventures.
Disparte and Tillemann succinctly said what most people in the room and in the media agreed upon: it is doubtful that the bill would be passed by the 117th Congress. However, they rightfully praised it as a starting step toward a thorough regulatory framework to safeguard the public without restricting the industry.
with many crucial issues that still need to be resolved.
How great a deal? As capitalism’s inventor, Adam Smith, responded after the surrender of British Gen. Burgoyne at Saratoga, the turning point in the American Revolution, “There’s a great deal of ruin in a nation.”
The foundational premise of Lummis-Gillibrand seems to be to sort blockchain assets into two categories. The largest, bitcoin (BTC) and ether (ETH), are to be treated as virtual commodities, regulated by the CFTC. Parallel to that, are thousands – the vast majority, of smaller cryptocurrencies – to be sorted out pursuant to a codified “Howey Test” and, mostly, treated as securities to be regulated by the Securities and Exchange Commission (SEC).
The Senators were adamant about how closely they worked with the CFTC and SEC during the legislation-drafting process. It is unclear how the accompanying compliance expenses were calculated or are to be limited, which can easily be prohibitive for early-stage firms.
Chair Gary Gensler’s SEC has taken an aggressive regulatory posture. It does not have a history as an easygoing regulator. The proposed legislation also would take the U.S. out of the algorithmic stablecoin race forever. This, presumably, is in reaction to Terra’s $40 billion LUNA debacle.
Yet, it overlooks the success (to date) of Frax.finance. Is there a baby being thrown out with the bathwater?
The major disadvantage that Lummis-Gillibrand appears to confront (assuming a Republican resurgence that is suspicious of regulations) is less in its contents, though they are important, and more in its overall regulatory-heavy stance.
The presentation’s Big Reveals revealed that the senators were more comfortable with the regulators than with the innovators. Sens. Lummis and Gillibrand delivered these in spontaneous speeches at The Post event.
Most concerning was an unscripted comment by Sen. Gillibrand calling not only for prospective regulation of Web3 (the category into which crypto presumably falls) but a push for retroactive regulation of the web itself (especially Web 2.0, presumably meaning social media). Sen. Gillibrand in her own words:
“If we get Web3 right, we can then perhaps look at Web 2.0 and say what would a data protection agency look like, to begin looking at it,” said the author.
Wait, what?
Despite its limitations, the internet, including social media, has proven to be one of the greatest technological success stories in history, contributing billions of dollars to the American economy and to the country’s leadership in the field of technology.
Read More: SEC Chair Gensler Suggests Lummis-Gillibrand Bill May ‘Undermine’ Market Protections
Sen. Gillibrand so subtly unveiled a radical regulatory agenda, including a pledge to heavily regulate the web, Web3, and subsequently Web 2.0. It is improbable that this will succeed in winning over 10 Republicans necessary for passage through the Senate.
After the 2022 midterm elections, the House will likely be under Republican control, which will likely be against regulation. The chances of passage are not good in light of this.
As for the considerably more conservative and Bitcoin-friendly Sen. Lummis, her own admissions at the introduction of her landmark crypto legislation cause concern. While noting the $5 million the sector has invested in the former, Washington Post reporter Tory Newmyer questioned about the significant entry of cryptocurrency into the lobbying and advocacy process in the capital.
How is that affecting things on the Hill? Newmyer enquired.
Sen. Lummis responded by saying:
Oh, I don’t know, I didn’t know that was going on.
Why, what?
An ambitious piece of comprehensive legislation’s co-sponsor freely admits that she was not aware of the industry’s involvement. The Senate co-sponsors freely admit that they spoke with federal regulators far more often than they did with those who were being regulated. That is hardly encouraging for the chances of passage.
Gen. Bosquet, a French general, said, “C’est magnifique, mais ce ne sont pas les politiques, c’est de la folie,” in reference to the Charge of the Light Brigade.
Bitcoin has not decoupled
And when asked why bitcoin (of which Sen. Lummis is a HODLer) has not seen its price act as a hedge against inflation, losing more than half its dollar value while inflation approaches double digits, Sen. Lummis responded: “Well, that’s a great question. I would have expected it to decouple from the stock market. It has not done that.”
Wait. What?
The co-sponsor of a substantial piece of ambitious legislation frankly acknowledges that the market does not support a key tenet of her proposed regulatory framework.
That is hardly encouraging for the chances of passage.
Economist Friedrich Hayek devoted his Nobel Prize in economics acceptance speech to an indictment of what he called “scientism,” in which the economics profession adopted the form, but not the substance, of science. Hayek:
The distinction between legitimate and illegitimate assertions made in the name of science is frequently tough enough for the professional and almost always unattainable for the layperson.
The fundamental importance of the rule of law is warmly embraced by traditional liberals, including those of us at the American Blockchain PAC. It’s libertarian philosophy!
Despite this, we have much more faith in the ability of natural market forces operating within the bounds of the law to promote equal prosperity and shield the populace from extortion, fraud, and force than we do in the ability of ambitious regulatory institutions. In particular, regulatory frameworks that have deviated from the path of reason even before the legislative train has departed the station.
Let freedom ring, in the words of blockchain pioneer and chairman of our advisory board Dr. W. Scott Stornetta.
We salute the release of “Ms. Crypto Goes to Washington,” which was produced and directed by Cynthia Lummis and Kristen Gillibrand, while tipping our hats to Jimmy Stewart. Brava!
Next, let’s ponder the following quote from Sen. Jefferson Smith, the book’s main character:
Get up there with the lady who represents liberty and is perched atop this Capitol dome.
Lummis-Gillibrand heralds the acceptance of cryptocurrency. It is old-fashioned.
To become a blockbuster, let’s just bring in Lady Freedom, “the lady that’s up on top of this Capitol dome.”
Read More: Crypto Bill Condemned by Consumer Advocates in Washington
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
