Legislative Outlook: What headwinds will cryptocurrency legislation face in 2024?

Cryptocurrency legislation faces several major headwinds in 2024, including the upcoming election season, potential opposition from Securities and Exchange Commission Chairman Gary Gensler, and pushback from some lawmakers who express concerns that the bill does not do enough to regulate the cryptocurrency sector. there is.

Cryptocurrencies range from the criminal trial of former FTX CEO Sam Bankman-Fried and the indictment of several exchanges to some industry court wins, the downfall of former Binance CEO Changpeng Zhao, and physical Bitcoin ​​Even the excitement about exchange-traded funds has had a rough year. . Come 2024, lawmakers will have all this in mind as they work on legislation to govern the industry.

The focus was primarily on two Republican-led bills last year. One bill seeks to regulate stablecoins at the federal level, while the other takes a comprehensive approach to the cryptocurrency market structure. Both bills were passed last July by Patrick T. McHenry, R.C. It passed the House Financial Services Committee, which the chairman leads, but must go before the Senate Banking Committee, which could be a difficult task next year.

“Banking has been a tough sector to crack,” Sen. Cynthia Loomis (R-Wyo.), a member of the Senate Banking Committee, said during a panel at the Blockchain Association Policy Summit in November. “The committee has advanced very little legislation and has been reticent in the area of ​​digitally enabled financial assets.”

Chairman McHenry, who is credited with playing a key role in pushing the stablecoin and markets bill, recently announced plans to retire at the end of his current term in early 2025, which could impact the passage of the bill.

Stablecoin Bill

Lummis added that the stablecoin could launch as early as 2024. The stablecoin bill was eventually passed by the House Financial Services Committee last July, but faced difficulties due to the White House’s opposition to the bill. Maxine Waters (D-Calif.), then-chairwoman of the House Financial Services Committee, said the bill was “seriously flawed.” supply This allows state regulators to approve stablecoin issuance without input from the Federal Reserve.

Senator Kirsten Gillibrand, who was on Lummis’ Blockchain Association panel last November, said she spoke with Representative Waters a few weeks ago and heard about her concerns and areas of the bill that would have worked.

“So I think we’re in a very good position,” Gillibrand said in November. “The House still has to do its own work, but at least I’ve had the benefit of hearing from Ranking Member Waters about what her biggest concerns are and what her goals are. And I think we’re very positive “I felt it had closure. That first meeting.”

Waters plays a pivotal role in passing stablecoin legislation. If she supports her bill, she will allow Senate Banking Committee Chairman Sherrod Brown of Ohio to take up her bill, Cody Carbone said. I am Vice President of Policy at the Digital Chamber of Commerce.

But Securities and Exchange Commission Chairman Gary Gensler’s views on stablecoins could be another obstacle, Carbone said. According to news reports, Gensler has previously compared stablecoins to money market funds and said stablecoins pegged to the dollar could fall under his agency’s jurisdiction.

“He (Gensler) was very close to Sherrod Brown,” Carbone said. “He’s very close to Elizabeth Warren. I could see them saying the SEC doesn’t like this and we’re not going to support it. Now, whether that means it can’t move forward, I don’t know.”

When asked to give his percentage chance of a stablecoin bill being passed in 2024, Carbone put it at 60%. ron Hammond, The Blockchain Association’s director of government relations estimated that number to be around 75%.

“I think there will be some version of a stablecoin bill passed by Congress in 2024, although it may be different from what we’re seeing now,” Hammond said. “It can look very different depending on the vehicle.”

market structure bill

The chances of passage of the 21st Century Financial Innovation and Technology Act, which would take a comprehensive approach to regulating cryptocurrencies as a whole, could be tricky. The bill would ostensibly transfer more responsibility to the Commodity Futures Trading Commission and direct it to: Regulators create a clear path for digital assets to transition from security investments to commodities.

Hammond said there is a 25% chance the bill will pass in some form in 2024. That’s partly due to a possible backlash from the SEC, Waters’ past opposition, and Brown’s silence on the matter.

Carbone refused to apply a percentage to the bill’s passage.

“I think one faces an even tougher uphill battle,” Carbone said. “Even though six Democrats came forward to support the bill, the SEC saw it limit their jurisdiction, and there was significant pushback.” “Yes,” Carbone said. But he added that if the SEC faces backlash in the courts, Democrats could move forward with the bill.

The SEC faced the following situation: partial It lost its case against Ripple over the summer and a judge ruled in a separate case. grayscale Regarding the bid for spot Bitcoin exchange-traded fund.

A Bitcoin ETF could legitimize the sector.

When asked about the prospects for his Responsible Financial Innovation Act, along with other potential cryptocurrency legislation, Lummis predicted there would be “substantial legislation” in 2024. One of the catalysts for this legislation could be the launch of a spot Bitcoin ETF, which the traditional financial community has been actively participating in, if it receives SEC approval early next year.

Many asset managers vying For spot Bitcoin ETFs including WisdomTree, Invesco, Fidelity, and BlackRock. The application requires approval from the SEC, and the regulator has not yet given approval for a spot crypto ETF.

Lummis said some of her colleagues don’t see legitimate uses for digital assets, only illicit ones. However, a spot Bitcoin ETF could undermine these criticisms.

“I think it will allay some of the fears of people who think there is only illicit use and will make them look at this asset class again,” Lummis said.

SEC Accounting Bulletin

Lawmakers plan to bring up SAB 121 next year after the Government Accountability Office (GAO) said in October that the guidance must be submitted to Congress by law before it can take effect.

The SEC’s Staff Accounting Bulletin No. 121 (SAB 121), issued in March 2022, requires companies that store cryptocurrency to record customers’ cryptocurrency holdings as liabilities on their balance sheets.

The notice is subject to the Congressional Review Act, which requires agencies to submit reports to Congress on regulations before they take effect, the congressional watchdog said Tuesday. Enacted in 1996, the CRA aims to strengthen congressional oversight of agency rulemaking.

According to GAO, Congress would have 60 days to review the rule and the ability to disapprove it.

election season

Carbone of the Chamber of Digital Commerce said the election could be good or bad for cryptocurrency legislation. That could not be good for legislative discussions, he said, because lawmakers will be focused on re-election rather than staying in Washington easily.

“It can be a good thing because people are outside of D.C., and things can slip where people aren’t paying attention,” Carbone said. He also said that the election raises awareness about cryptocurrency-related issues. Presidential candidates such as Republican Vivek Ramaswamy and independent Robert F. Kennedy Jr. have also expressed support for cryptocurrencies.

“Do you think they’ll be on the ballot in November,” Carbone said. “But it’s nonsense for a presidential candidate to come up with a cryptocurrency plan, even if he doesn’t have a chance, the way they are putting out a cryptocurrency plan.”

He added that federal agencies may not have much interest in passing legislation that could fill the void through rulemaking and more enforcement actions.

Rep. Waters did not respond to a request for comment.

Senator Brown, who is up for re-election in 2024, said we need a cryptocurrency framework that protects the economy and that the industry should not be writing it. The cryptocurrency industry has set a notable new record in federal lobbying spending in 2023. Reuters.

“After countless hearings on cryptocurrency, the last thing we need is for the cryptocurrency industry to write its own rulebook,” Brown said in an emailed statement. “Too many Ohioans have been harmed by scams and scams. “He said. “We need a framework of rules for cryptocurrencies that protects our economy and protects Ohioans’ hard-earned money from abuse.”

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