Cryptocurrency leaders say that even though they failed to change language related to the regulation of their industry in the Senate’s bipartisan infrastructure bill, the heated floor fight over it underscores their growing power in Washington.
They’re gearing up to use that momentum to push back on the bill in the House and take the lead on future cryptocurrency rules.
“I think we were an unexpected force to be reckoned with,” said Kristin Smith, executive director of the BlockChain Association.
The industry group, along with cryptocurrency companies and digital rights advocacy groups, created a joint front to push back on a provision in the bill that they argued included an overly broad definition of “broker” that would sweep in regulations for software developers and so-called miners.
“We were able to sort of work outside of some of our traditional allies and build a bigger coalition, and one that we think, despite not getting it across the finish line in the end, was actually pretty effective,” Smith said.
The provision on cryptocurrency regulation helps fund the roughly $1 trillion bill, which cleared the Senate on Tuesday. The reporting requirements could raise $28 billion over 10 years, according to the Joint Committee on Taxation.
Industry leaders, however, warned the broad definition might lead to unintentionally requiring software developers and miners to report data they wouldn’t even have access to, which could stifle innovation and push the industry outside of the U.S.
After 40,000 calls to legislators and more than 10,000 tweets with the hashtag #DontKillCrypto, led by digital rights group Fight for the Future, the cryptocurrency community won over support from a bipartisan group of senators who offered amendments to redefine brokers in a way aimed to keep it from sweeping in the developers and transaction validators.
“This was a monumental moment for the crypto industry, because this is the most vocal — and even though we didn’t win — I still think effective campaign that we’ve ever had,” Smith said.
The Electronic Frontier Foundation and Fight for the Future energized their base of supporters based on concerns about surveillance and privacy and used their digital organizing playbook to quickly mobilize and reach senators.
“It really spread like wildfire,” said Rainey Reitman, chief program officer at the Electronic Frontier Foundation.
“One of the big turning points was that senators just saw their Twitter feeds blowing up with constituents messaging them and tweeting at them about a cryptocurrency provision that maybe they hadn’t even been paying any attention to. And that was, I think, what really kind of started to change the conversation,” Reitman said.
The final compromise effort, supported by the Treasury Department and Sens. Pat Toomey (R-Pa.), Mark Warner (D-Va.), Kyrsten Sinema (D-Ariz.), Rob Portman (R-Ohio) and Cynthia Lummis (R-Wyo.), ultimately failed on the Senate floor — blocked after Sen. Richard Shelby’s (R-Ala.) attempt to tack on his untreated proposal to boost military spending.
“The fact that a bipartisan group of senators — and very influential senators … were all persuaded of the industry’s point of view, that shows that it’s a rapidly maturing industry organization,” said Sujit Raman, a partner in Sidley’s Privacy and Cybersecurity practice and former associate deputy attorney general.
Because the final roadblock to amending the language was not based on the substance of the proposal, there’s a chance for future legislation to rectify the concerns of the senators and industry leaders.
“I think once people realized what actually was happening, I felt like we quickly won the arguments on the merits,” a cryptocurrency insider told The Hill.
Toomey lashed out on the Senate floor after the last-ditch effort failed over the unrelated debate about Shelby’s proposal.
“This isn’t a whim of the senator from Pennsylvania. There is nobody who disputes that there’s a problem here,” he said.
“We will be back on this because we are going to do a lot of damage. Who knows how much innovation we’re going to stifle. Who knows what kind of new apps just never emerge. It’s hard to predict what this results in. But it’s not good and it’s going to bring us back here having to try to clean up a mess which we could have prevented,” Toomey added.
The lack of substantial debate because of Shelby’s block, however, also means senators didn’t have to show their hands or where they stand if they do oppose the proposal, the industry insider who spoke to The Hill said.
Progressive Sen. Elizabeth Warren (D-Mass.), for example, has been a staunch advocate for more regulation of cryptocurrency. In July, Warren sent a letter to Securities Exchange and Commission (SEC) Chairman Gary Gensler calling for the agency to use its “full authority” to address risks posed to “ordinary investors” by “regulatory gaps.”
Gensler responded in the letter, shared by Warren’s office Wednesday, that he agrees investors on cryptocurrency platforms “are not adequately protected,” building on comments he made publicly last week likening cryptocurrency to the wild West.
But as the infrastructure bill heads to the House, the industry is again finding allies on both sides the aisle.
“Left unchanged, this provision will have sweeping implications for crypto innovators in our country and further regulate innovation out of the United states,” the bipartisan co-chairs of the House Blockchain Caucus said in a letter sent earlier this week to every House member.
“Cryptocurrency tax reporting is important, but it must be done correctly. When the Infrastructure Investment and Jobs Act comes to the House, we must prioritize amending this language to clearly exempt noncustodial blockchain intermediaries and ensure that civil liberties are protected,” they added.
Any amendments to the bill in the House are also subject to the larger debate around the legislation. But there’s time for cryptocurrency groups and advocates to push lawmakers. Speaker Nancy Pelosi (D-Calif.) on Wednesday made clear the House will not move toward a quick vote on the Senate-passed package despite calls from moderates in her party.
“We’ve definitely already seen a lot of positive signs from various House members that they get this, that they understand these issues of cryptocurrency are actually a progressive issue not just a finance issue. And that there’s human rights questions at stake here. So we’re optimistic that we’ll have allies like Ron Wyden in the House,” said Fight for the Future’s Lia Holland.
The Democratic senator from Oregon put forward an amendment last week, along with Toomey and Lummis, that to many within the cryptocurrency industry is the preferred method to modify the language. That proposal, however, pitted Wyden against the Biden administration.
Wyden was notably missing from the sponsors of the final compromise amendment pitched the night before the passage of the underlying bill, but he conceded on Twitter its language was better than the initial bill.
Although there are doubts about whether the language in the infrastructure bill has a chance at changing in the House, Smith said the fight has regardless served as a “wake-up call” to the industry that Washington will be an “ongoing challenge.”
“I’m really optimistic that we’re entering a new era in crypto policy,” she said. “One where there is sort of maybe more respect for what the people in the industry are working to build, but also one where the industry and the broader community can actually meet the demands that Congress and policymakers have for having better education on these issues.”