Cryptocurrency is currently a hot topic in US politics. However, this was not always the case, especially given that only a small percentage of US politicians appear to have a basic understanding of digital currencies.
Nonetheless, it has developed into a wedge issue on the verge of devolving into a destructive political football destined to occupy a new, uncomfortable spot in the cultural war’s ongoing devolution. While this is undoubtedly dismal news for rational political dialogue in the United States, it is unclear how this will effect the bitcoin industry.
Let us begin by discussing how we get here.
For the last couple of years, a few members of Congress have been discreetly working on common-sense cryptocurrency legislation. These smart Democrats and Republicans in the United States House of Representatives and Senate have taken up the issue and written legislation to define cryptocurrencies, hedge investment risk, combat fraud, and integrate digital currency into a long-established centralized system. Those hoping for legislators on both sides of the aisle to accept complete decentralization will have to wait an extremely long time. Nobody in the 117th Congress considered this, and it is quite improbable that anyone in the 118th, 119th, or 120th Congress will either.
Until recently, bitcoin and blockchain topics were taboo in Congress, just as they were for the vast majority of ordinary American citizens. They were never used as political wedge issues in the 2020 presidential race between Donald Trump and Joe Biden. The majority of Americans were either unaware of or unconcerned about bitcoin.
Things changed for a variety of reasons, not the least of which were billionaire and Dogecoin aficionado Elon Musk’s Twitter habits. Musk tweeted on April 25: “Am hosting SNL on May 8.” The price of Dogecoin closed at $0.27 that day. The following day, NBC confirmed Musk’s announcement, and the memecoin closed at $0.32.
Soon after, Shark Tank star and billionaire Dallas Mavericks owner Mark Cuban revealed that BitPay will handle “Mavs Doge sales,” adding on The Ellen DeGeneres Show: “At the Mavs, we sell a lot of Dogecoin goods, and you should check it out for the Ellen Shop.”
At that time, eager crypto newcomers clamoured to establish accounts on welcoming trading platforms such as Robinhood and cryptocurrency exchanges such as Coinbase. DOGE began to buzz, naive speculators swarmed, HODLers stayed on, and Dogecoin maxed out at over $0.75 right before Musk’s opening monologue. Musk delivered an uninspired performance, and Crypto Twitter was disappointed. Musk’s character later in the show stated that Dogecoin was a “hustle.”
Dogecoin began its rapid decline. FOMO, as it frequently does, resulted in FUD – sometimes tragic, hopelessly delusory FUD. Two of Washington, DC’s most prolific and competitive politicians instantly took note and took positions on opposing sides of the cryptocurrency regulatory argument.
Cue Senator Warren
Senator Elizabeth Warren’s decision to speak out about cryptocurrency was not just motivated by Musk’s apparent market manipulation and his Saturday Night Live appearance. She undoubtedly observed the market’s seesaw reaction to China’s May 18 prohibition of cryptocurrency transactions by financial institutions.
Warren has previously expressed concerns over token volatility, blasting Robinhood’s troubled history of alleged fraud – including blocking dealers from selling Dogecoin on May 8, shortly after Musk’s SNL performance. On June 9, Warren spoke with Bloomberg Technology about cryptocurrency, telling the publication: “It’s the Wild West out there, and that makes it a bad method to purchase and sell things, a bad investment, and a disaster for the environment.”
Bitcoin mining consumes roughly the same amount of electricity as Washington state—putting pressure on our power grids and worsening the #ClimateCrisis. We need to protect our planet and crack down on environmentally wasteful crypto mining practices. https://t.co/ChKYcD82gH
— Elizabeth Warren (@SenWarren) September 7, 2021
Warren is the most important progressive voice in the upper chamber, second only to Senator Bernie Sanders. Although the senator lacks the ability to dictate policy — only moderate legislation can pass this Senate — she wields considerable influence, and her views are shared by a substantial percentage of the Democratic base. Constituents with little or no knowledge of bitcoin are likely to take her remarks as entirely accurate.
According to Warren, cryptocurrency is a “lousy investment” for the typical person. It is irrelevant that she and other legislators could change the taxable status of cryptocurrency used to purchase goods with the stroke of a pen, or that cryptocurrency is a good investment for those willing and interested in self-education, or that crypto volatility has no effect on the uninvested. Her message to the base is succinct and straightforward: cryptocurrency is harmful for the little guy. It benefits the wealthy. It’s just another instrument for squeezing the middle class.
Senator Cruz, always looking for an opportunity to stir the pot
Senator Ted Cruz may not be the most powerful conservative voice, but he remains a strong politician. It’s unclear whether he brought up cryptocurrency in response to Senator Warren or stumbled across an opportunity to criticize Democrats. Cruz is a long-term political opportunist who is intelligent and talented enough to understand how to grow the base, but frequently clueless about the subjects on which he campaigned.
Cruz said to Sean Hannity of Fox News on June 9 that he does not comprehend Bitcoin: “It is a new cryptocurrency.” To be honest, I’m not quite certain I understand it. […] It has potential, but use caution.” Additionally, he stated that individuals will adopt Bitcoin as a “hedge” against inflation as a result of President Biden’s proposed “$7 trillion in additional expenditure.”
Cruz is correct that the United States is experiencing inflation at the moment, albeit it has nothing to do with unallocated government infrastructure expenditures. It is the result of a number of circumstances, including supply chain delays caused by COVID-19. Cruz is also correct in stating that Bitcoin is a cryptocurrency, although this is not a new concept. While the senator was undoubtedly unfamiliar with cryptocurrencies at the time of the Hannity interview, he managed to portray himself as an informed voice – as the conservative anti-Warren cryptocurrency hero with a political agenda.
🚨🚨The Senate is on the verge of passing legislation that would be TERRIBLE for cryptocurrency.🚨🚨
The infrastructure deal contains DANGEROUS provisions that would devastate crypto and blockchain innovation.
Supporters of crypto need to make their voices heard. https://t.co/iXrcnne0tV
— Ted Cruz (@tedcruz) August 7, 2021
In early August, he twisted the China crypto-ban narrative to make a political point about Biden’s Infrastructure Investment and Jobs Act’s tax reporting requirements, tweeting: “Democrats despise crypto currencies,” referring to Saule Omarova, Biden’s nominee for comptroller of the currency, who is unlikely to be a crypto friend.
Senator Warren is a legislative activist who frequently grasps the nuances of nearly every issue she tackles. While she is incorrect about bitcoin, her staunch ideological leanings make it very impossible to persuade her otherwise. Senator Cruz is an astute politician. He is better acquainted than most with the electoral terrain of contemporary conservatism and will say nearly anything if it benefits him politically.
When it comes to bitcoin, it’s difficult to see how ideology could be a greater motivator for either Senator than facts and on-the-ground or market realities.
Nonetheless, there is significance in their fundamental points. If bitcoin is to be adopted by mainstream Americans, fair regulation is required that does neither suffocate the industry or place the country at a competitive disadvantage on the global stage.
Christine Trent Parker, a Reed Smith attorney specializing in regulatory, enforcement, and transactional matters involving cryptocurrencies, feels that retail buyers desire “the new financial products offered elsewhere, on foreign exchanges.” […] They see that and desire it, and they intend to pursue it wherever it may be.”
Numerous those items are not available in the United States, and those that are do not have consumer protections. Parker is concerned that “political fault lines,” such as those advocated by Senators Warren and Cruz, have “stymied” US regulators from offering retail-oriented products with a consumer protection component.
What’s going on in good faith?
Other members of Congress are discreetly pursuing good-faith measures that could ultimately help retail customers, institutional investors, and cryptocurrency providers. In the Senate, Republicans Pat Toomey, Cynthia Lummis, and Rob Portman recently collaborated with Democrats Mark Warner and Kyrsten Sinema to craft a compromise amendment to the Infrastructure Investment and Jobs Act’s contentious cryptocurrency wording. The amendment failed to garner unanimous support from all 100 senators, with Richard Shelby disagreeing, and so did not make it into the final measure.
Additionally, Sinema and Lummis announced their co-chairship of the United States Senate Financial Innovation Caucus in late May. The caucus will focus on responsible financial innovation, distributed ledger technology, and digital assets, according to a press statement from Lummis. On the national security front, Senator Bill Hagerty introduced legislation to examine the consequences of China’s efforts to establish its own digital currency, while Senators Marco Rubio and Elizabeth Warren introduced bills examining the role of cryptocurrency in ransomware attacks.
Senators Maggie Hassan and Joni Ernst introduced legislation to “assist in the improvement of oversight of cryptocurrency mining operations in other countries.”
The measure would require the secretary of the Treasury to evaluate how other countries mine digital currencies, the dollar value of digital currency mined each year from 2016 through 2022, and any supply chain disruptions associated with mining activities.
While the Senate is widely regarded as the gentler body of Congress, bipartisan agreement among senators is uncommon. Kristin Smith, executive director of the Blockchain Association, told CoinNewsDaily that lawmakers should be able to establish common ground on cryptocurrency regulation:
“Crypto really is bipartisan. It’s important as a narrative against what’s happening in China. It’s important from a financial inclusion perspective. It’s important from an innovation and jobs creation perspective. These are issues that both Republicans and Democrats care about.”
While the Senate has been rather active recently, the House of Representatives is where the actual work is being done. Legislators have already introduced well over a dozen bills, the most of which are bipartisan.
The Congressional Blockchain Caucus played a critical role in the drafting of a significant portion of that legislation. The caucus, which was founded in 2016, is now co-chaired by Bill Foster, Darren Soto, Tom Emmer, and David Schweikert.
The caucus is bullish on the future of blockchain technology, acknowledges Congress’ role in its development, and has opted for a light-touch regulatory approach.
Unlike notable members of Congress such as Senators Cruz and Warren, members of the Blockchain Caucus are rarely featured in major news sites, despite their substantially greater contributions to the subject. According to a knowledgeable legislative employee, CoinNewsDaily:
“As these partisan leanings on this are emerging and we’re seeing it more and more, I think the emphasis and the focus need to be on the Blockchain Caucus, the [bipartisan] work that the caucus is doing, and not pay too much attention to the partisanship.”
The co-chairs wrote to the IRS in July, requesting clarity on the taxation of block rewards issued through a proof-of-stake network. “It is critical that tax policy does not deter US taxpayers from partaking in this exciting new technology,” they said.
Additionally, Representative Emmer introduced the Blockchain Regulatory Certainty Act, which seeks to protect software developers and non-controlling blockchain service providers, as well as two companion bills: the Blockchain Promotion Act and the Safe Harbor for Taxpayers with Forked Assets Act. On the other side of the aisle, Representative Soto co-sponsored the Blockchain Promotion Act and the United States Virtual Currency Market and Regulatory Competitiveness Act, which would recommend a regulatory structure and require the Commodity Futures Trading Commission and the Securities and Exchange Commission to assess the benefits of digital currencies to the commodity market.
Patrick McHenry, a caucus member, was the sole sponsor of legislation that advanced past the introduction phase. The bill, which passed the House in April, would direct the SEC and CFTC to convene a working group to examine the regulatory environment for digital assets in the United States.
Additional bills call for the establishment of a National Blockchain Technology Coordination Office, the publication of a report on unfair trade practices involving tokens, the conduct of a study into the use of blockchain technology to enhance election security, and the requirement to report cryptocurrency ransom payments.
Risks to the ecosystem from politics
Smith believes that comprehensive cryptocurrency law is still a long way off. She informs:
“There’s still a knowledge gap. […] There are too many members of Congress that don’t have enough of a base of understanding. Congress needs to come in and bring regulations to this space. I think we’re several years away from something like that getting traction.”
While trade associations familiarize themselves with Washington’s terrain and attempt to educate politicians, the best-case scenario is that sanity prevails. If moderate parliamentarians win the hearts and minds of American people, the investment community will be less likely to be harmed by excessive, stand-alone regulatory regulations, given the presence of pro-crypto senators on both sides of the aisle.
It is implausible that any measure including heavy regulation will ever pass the legislative committee, let alone reach President Biden’s desk.
Additionally, moderates would ensure that fraud, persistent market volatility, and investor manipulation never become long-established norms. Eventually, a US president will enact genuine legislation that properly defines cryptocurrencies, delegated federal regulatory authority, implemented common-sense fraud protections, and contributed to market stabilization. It is demanded by a largely uneducated public. Institutional investors, who contribute the majority of campaign contributions, anticipate it, and industry competitors require it. Eden Doniger, BitPay’s general counsel and chief compliance officer, stated:
“Clear and tailored federal legislation on crypto will create a level and equitable playing field for all companies in the space. […] All of this will boost business and consumer confidence and thus increase adoption.”
On the other hand, if Senators Warren and Cruz, as well as those who support them, succeed in turning cryptocurrency into a political wedge issue, the ecosystem risks devolving into toxic political sludge from the inside out. Legislative initiatives on a bipartisan basis would stall.
“If bitcoin becomes hyperpoliticized,” the congressional staffer explains, “it will be more difficult to further construct a regulatory environment for this field in the future.” According to the worker, legislation will “have to face a great deal of back and forth” depending on which party holds the majority at the moment.
The regulatory environment would wobble in the same way that a “pendulum” does. The crypto community would have a difficult time isolating itself from hyperpartisanship’s pernicious repercussions.
“Surprisingly, Democrats are more resistant to #crypto (than Republicans).” -Nancy Wojtas.
They are not seeing crypto’s potential for massive social good, then, requiring more education. #TokenSummit
— Chris Burniske (@cburniske) May 17, 2018
If right-vs.-left thinking pervades the crypto trading community, as it has begun to do, and Republicans identify as pro-crypto while Democrats identify as anti-crypto, the community’s politically neutral nature may begin to fracture and disintegrate. Almost any bitcoin room on Clubhouse represents a diverse demographic on social media. There is some semblance of unanimity, and everyone gets along to some level. While there are heated disputes, they typically concentrate around issues such as Bitcoin evangelism, certain cryptocurrencies, or favored exchange platforms.
Consider what would happen if the Clubhouse or Twitter area devolved into Progressive and Conservative Crypto. Consider the influencers on YouTube and TikTok who are Republican and Democratic. Consider how this spreads beyond social media to blockchain platform developers and token developers – right-wing executives versus left-wing programmers, single-issue cryptocurrency voters versus multi-issue policy voters versus crypto-social-ideological voters.
Since 2008, cryptocurrency has come a long way, owing largely to the fact that members of the community share similar aims and are motivated by similar inventive aspirations. Nonetheless, the sector is in its infancy. It is debatable if one can survive internal politicization.
I’m not a Democrat.
I’m not a Republican.
I’m a member of the Bitcoin party ✌️
— Dan Held (@danheld) October 10, 2021
The second harmful result occurs externally. The crypto ecosystem is growing at a quicker rate than any other technology in the modern age, yet the vast majority of people in the United States and throughout the world remain unaware. If people are introduced to bitcoin through venues such as Fox News or MSNBC — two networks that are almost totally focused on politics — they will view the subject through an ideological prism. If the public becomes corrupted before fully comprehending the benefits of the technologies, conservatives may just embrace crypto while progressives despise it.
Independents will be unable to express their views on it.
As a result, bitcoin may not be widely adopted by the average American and may struggle to establish a footing in the country. The inventive environment may remain dormant for years as politicians battle it out at the voting box and the country slips far behind other countries with more informed citizens. According to the congressional staffer:
“Crypto is going to thrive with or without the United States. Now the onus is on us to keep these opportunities here.”
Arguably, it is in everyone’s best interest to engage in the political climate in Washington and to support moderate lawmakers who are earnestly working on cryptocurrencies.
Otherwise, it will be politically motivated fearmongers in Washington who will raise the loudest voices, not fly-by-night crooked whales or federal regulators.