Crypto debate set to return in force

The debate over regulating cryptocurrency is set to heat up when lawmakers reconvene in Washington, as industry leaders and members of both parties double down on their objections to the current language in the bipartisan infrastructure bill.

And beyond revising the infrastructure provision after failed efforts, further attempts to regulate cryptocurrency may bring together unlikely allies in Congress — and draw battle lines within parties.

“Rather than trying to ignore or suppress cryptocurrency and related technologies, regulators and legislators alike need to recognize that open, public networks are here to stay. Our laws and regulations must adapt to these developments,” Sen. Pat Toomey (R-Pa.) said in a statement Thursday.

Toomey, the ranking member of the Senate Banking Committee, put out a call soliciting proposals on how to ensure federal law supports the development of crypto and open blockchain network technologies in a way that protects investors. The committee will collect proposals through Sept. 27.

“I am hopeful the broad array of legislative proposals I receive will help in crafting thoughtful legislation,” he said.

Toomey’s request comes on the heels of two failed efforts to amend the infrastructure bill, both of which he backed. Toomey joined Sens. Cynthia Lummis (R-Wyo.) and Senate Finance Committee Chairman Ron Wyden (D-Ore.), in proposing an amendment to the provision in the legislation that would have redefined the term “broker” to limit the new reporting requirements to keep so-called miners and developers from being roped in.

When that provision got pushback from the Biden administration, pitting the White house against Wyden, Toomey signed on to a compromise amendment that aimed to revise the language to similarly exempt the unintended players from the requirements. But that effort failed as well, not based on substance but due to procedural struggles after Sen. Richard Shelby (R-Ala.) tried to attach an untreated proposal to boost military spending.

Bipartisan lawmakers in the House sounded similar alarms and urged amendments to the language, but their hands were tied based on the larger debate around the bill, and Speaker Nancy Pelosi (D-Calif.) ended chances to amend the bill as part of a deal with moderates.

Given that amendment efforts weren’t blocked based on substance, industry leaders are hopeful to revise the language through other legislative vehicles going forward.

“We think that the political will and interest is there, it’s really going to be finding the right opportunity and channeling all of the support that we have in Congress into moving that forward,” said Kristin Smith, executive director of the BlockChain Association.

“What we’ll hopefully see emerge now that we sort of know the lay of the land is, hopefully there will be members coalescing around the single strategy to get this fixed,” she said. “It’s certainly disappointing but it doesn’t come as a surprise that we weren’t able to get an amendment in this bill.”

After the debate put a spotlight on the industry, Washington has its eye on regulations beyond amending the definition for reporting requirements as laid out in the infrastructure bill.

That debate is what prompted Toomey to solicit legislative proposals, but he’s also looking for ideas broadly on crypto regulation, according to a GOP aide.

The industry-wide backlash to the bill highlights why Congress needs to engage with stakeholders and prioritize how to regulate the industry without stifling innovation, the GOP aide said.

Within the industry there was widespread criticism that Congress lacked the understanding of how crypto functions before hastily adding in the provision to help pay for the roughly $1 trillion bill. That purported lack of understanding, they argue, could lead to unintended consequences.

The knowledge gaps may prompt lawmakers to hold more hearings with industry experts in coming months, according to the GOP aide.

But others in Congress are not as warm to the industry. Sen. Elizabeth Warren (D-Mass.), for one, has been pushing for more regulation — slamming crypto as “the wild west of our financial system.”

Warren sent a letter to Securities and Exchange Commission Chair Gary Gensler in July pressing him on the need to regulate cryptocurrency exchanges. The month before, she chaired a Senate Banking, Housing, and Urban Affairs Committee’s subcommittee on Economic Policy hearing on the industry, pressing experts over the safety and reliability of cryptocurrencies.

The GOP aide said Toomey is not on board with Warren’s approach, which the Republican senator thinks could stifle innovation and lead to lawmakers rushing into regulation before better understanding its impacts.

But Toomey did find common ground with Wyden while working on the amendment despite its ultimate failure. And through the effort, Wyden broke from some of his Democratic colleagues and the Biden administration in proposing his version of the fix.

Even when Toomey and Lummis joined Sen. Rob Portman (R-Ohio) and Democratic Sens. Mark Warner (Va.) and Krysten Sinema (Ariz.), on the compromise amendment that won over support from the administration, Wyden notably left his name off the proposal. However, the Oregon Democrat did not try and block the measure, and said it was “certainly better than the underlying bill.”

Whichever way the regulation debate plays out in Congress, the cryptocurrency industry is ramping up efforts in D.C. In addition to the industry boosting lobbying, the debate around the infrastructure bill mobilized a grassroots push that led supporters to tweet and call lawmakers directly.

Smith said she expects that engagement level to remain.

“The crypto community at large, even broader than just the Blockchain Association, has been following this very closely and is eager to be engaged and participate and I think that having that is crypto’s superpower,” she said.