The White House pointed the finger at Congress Friday for stalling on a comprehensive, national crypto regulatory framework, outlining numerous actions lawmakers could take to reign-in fraud and bad actors in the crypto sector.
Congress “needs to step up its efforts,” four of President Biden’s senior advisors wrote in a White House blog post on crypto policy published Friday morning.
The post goes on to highlight a number of moves Congress could make immediately to purportedly enhance consumer protection standards in the crypto space.
Those moves include expanding the powers of federal regulatory agencies like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC); strengthening transparency and disclosure requirements for crypto companies; aiding law enforcement by increasing funding, strengthening penalties for existing finance rules, and enhancing those rules to penalize intermediaries; and passing legislation to regulate stablecoins, as outlined in a recent Treasury Department report.
Stablecoins are cryptocurrencies whose values are tied to sturdy assets like gold and the U.S. dollar; this relationship is meant to keep the values of stablecoins relatively constant, even in periods of crypto market volatility. That theory has been repeatedly tested, however, most notably last May when so-called algorithmic stablecoin UST de-pegged from the U.S. dollar and subsequently collapsed, leading to a chain of events that wiped out some $40 billion in value. UST was not actually backed by a reserve of dollars, but instead an algorithm designed to keep its value consistent. That algorithm failed, and it's at least partly responsible for kicking off the current crypto winter.
Biden’s advisors went on to caution in Friday’s note that the recently sworn-in Republican House of Representatives could also make matters worse by loosening regulations at such a crossroads.
“Congress could also make our jobs harder and worsen risks to investors and to the financial system,” the advisors wrote. “It would be a grave mistake to enact legislation that reverses course and deepens the ties between cryptocurrencies and the broader financial system.”
The warning appears to be an allusion to the new Subcommittee on Digital Assets, Financial Technology and Inclusion recently announced by House Republican leadership. The committee’s chair, Representative French Hill (R-AR), has stated he aims to “promote responsible innovation” in the cryptocurrency and FinTech sectors.
While the White House was quick to put blame for crypto-related inaction on Republicans, President Biden hasn’t exactly made it a priority either in the two-year period from early 2021 to just weeks ago, in which Democrats controlled the presidency, the House, and the Senate. During that period, several controversies rocked the crypto industry, including the collapse of UST last May, and the implosion of $32 billion crypto exchange FTX in November.
Multiple cryptocurrency bills are currently floating around Washington, though none have yet been voted on. The Stablecoin TRUST Act, which would establish a federal regulatory framework for “payment stablecoins,” was introduced in the Senate in December. The Lummis-Gillibrand Responsible Financial Innovation Act—which would give crypto regulatory power to the CFTC—has been kicking around the Senate since last June.
The Digital Commodities Consumer Protection Act (DCCPA), introduced in August, would have similarly limited the SEC’s ability to regulate the crypto industry. Seen as a boon for crypto exchanges, the bill was a pet political project of disgraced FTX founder Sam Bankman-Fried, who spent tens of millions of dollars on political donations and ample time in Washington in the months surrounding the bill’s announcement. Bankman-Fried donated $5 million to an organization that funded a blitz of pro-Biden ads in the run-up to the 2020 presidential election; the White House has repeatedly declined to comment on the matter.
While the DCCPA did gain bipartisan momentum among lawmakers in the fall, the bill’s association with Bankman-Fried—who is currently awaiting trial for eight criminal charges, including fraud and conspiracy to commit money laundering—has potentially derailed its path to adoption.