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Sea change?

The narrative

The approval of cryptocurrency legislation, whether it ultimately gets enacted or not, could mark a significant shift in the perspective of Washington, D.C. towards this sector.

Why it matters

As a crypto industry analyst, I’ve long advocated for clear-cut regulations that distinguish between different categories of digital assets. This month’s Congressional votes, while largely symbolic, represent a significant stride towards realizing this goal.

Breaking it down

Last week, 71 Democrats and 208 Republicans supported the Financial Innovation and Technology for the 21st Century Act in a vote. Conversely, only 3 Republicans and 133 Democrats opposed it. Previously this month, there was another vote to revoke SEC Staff Accounting Bulletin 121, which garnered approximately 30 Democratic votes in both the House and Senate.

Over the past few weeks, there has been increasing mention of the term “sea change” in relation to the cryptocurrency industry. With Donald Trump, the former U.S. President and current Republican front-runner, publicly acknowledging its significance as an election issue, this sector seems poised for a more prominent role in politics than ever before.

Last week marked a surprising turn of events as the SEC approved 19b-4 forms in bulk from various exchanges intending to list and deal with Ether ETF shares. This came as a contrast to the anticipated rejection of these applications only two weeks prior.

So what’s changed?

Some people with a more skeptical perspective might argue that these votes were motivated solely by the upcoming election and wouldn’t have occurred otherwise. The current election season certainly seems to be influencing these decisions in some way.

Joe Biden, the President of the United States, declared his intention to veto the proposed repeal of SAB 121. This announcement provided Democrats with the necessary protection to support the bill, as there is no equivalent legislation in the Senate regarding the FIT21 issue. Consequently, casting a vote in favor of it would solely benefit Democrats among constituents who view being pro-crypto as an influential factor.

The day following the FIT21 vote, a legislation prohibiting the U.S. Federal Reserve from advancing in creating or managing a central bank digital currency was predominantly passed along party lines, with minimal dissenters. The discourse surrounding this issue was more heated but the outcome implies that the crypto stance isn’t strictly pro or con (though this assessment depends on your perspective regarding CBDCs as pro or anti-crypto matters).

As a researcher, I’d like to point out that FIT21 gained significant traction during the previous year. It managed to clear both the House Financial Services and Agriculture Committees, setting it up for a potential House vote. However, its progress came to a halt when then-Speaker Kevin McCarthy (R-Calif.) was removed from his position via a vote initiated by Rep. Matt Gaetz (R-Fla.).

After Speaker Mike Johnson (R-La.) was appointed as the current speaker in the House, it seemed that the chamber failed to regain its momentum and instead focused on passing budget bills rather than moving forward with other votes.

To put it another way, although there’s more progress being made on these bills than there was a year ago, they weren’t suddenly introduced out of thin air. Congress has been preparing for their passage over an extended period.

As an analyst, I’ve noticed an intriguing development in the political landscape this year: the crypto industry has been amassing a significant war chest for upcoming elections. This could be the tipping point that shapes the current political climate. It’s no secret that interest groups have long used their financial resources to sway primary results and elections. The awareness of these maneuvers within Congress is undoubtedly heightened as a result.

Despite the current surge in cryptocurrency interest unlike any before, it remains uncertain if the push for crypto legislation will persist following the U.S. election in November. If the ongoing process continues during the lame-duck session, new laws may be passed. However, a fresh Congress taking office in January could also initiate legislative efforts on this topic.

The factors influencing these questions are clear, namely the shape of Congress and the presidency following the election, as well as the potential for increased bipartisan collaboration on these topics or if one major party is poised to wield greater power in shaping policy.

Last week, the Securities and Exchange Commission (SEC) gave its approval for the 19b-4 forms submitted by exchanges aiming to list and trade spot Ethereum Exchange Traded Fund (ETF) products. However, the SEC still needs to approve the S-1 forms from the issuers themselves to create these products. The approval of these forms has sparked discussions about a potential change in political sentiment towards cryptocurrencies. It is essential to keep in mind that the SEC operates independently, and any allegations of administrative influence – be it past rejections or recent approvals – raise more serious concerns than just Washington’s stance on crypto. No concrete evidence has surfaced yet indicating that the Biden administration pressured the SEC to endorse Ethereum ETFs.

Last week, SEC Chairman Gary Gensler revealed that the Securities and Exchange Commission (SEC) had drawn inspiration from the landmark court ruling on last year’s bitcoin spot ETF applications in its deliberations over approving spot Ethereum ETFs. This explanation offers a clearer rationale for the progress being made in this area.

As a crypto investor, I’m excited to discuss the current challenges and potential future developments in the cryptocurrency space during our event in Austin. If you’re fortunate enough to be in town, please join us, particularly on Thursday for our Annual Policy Summit. Let’s engage in insightful conversations and learn from each other.

Stories you may have missed

This week

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Elsewhere:

If you have ideas or queries regarding the topics I should cover in the upcoming week or any suggestions you’d like to make, please don’t hesitate to reach out to me by email at nik@coindesk.com or connect with me on Twitter @nikhileshde.

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See ya’ll next week!