Democratic party split on cryptocurrency adoption
The divided Democrats and what it may mean for crypto
Welcome back!
This week, I am in the middle of traveling in Israel to learn about the start-up scene of this entrepreneurial country. Because of that, I have had almost no free time to write, so the newsletter is somewhat shorter than usual. I hope you enjoy anyways, and see you next Sunday.
-Katja
Democratic party split on cryptocurrency adoption
It comes as no surprise that the typical divide between Democrats and Republicans has prevailed in the debate around crypto regulation. However, in recent weeks (through interviews and proposed legislation) the Democratic party has also shown a rift among its government officials when it comes to crypto.
The latest example of this came during the recent House hearing on digital assets. With the Russia-Ukraine conflict continuing, the Senate Banking Committee wanted to understand if Russia could use crypto to evade sanctions. Throughout the hearing, the witnesses agreed and reiterated how it is essentially impossible for Russia to use crypto for such a purpose. Although some senators listened to the witnesses' testimonies, others were less receptive.
Sen. Warren (D-MA) has been one of the most vocal leaders of the crypto-skeptical left, citing the dangers crypto poses to consumers, the crimes crypto allows, and the environmental threats crypto brings. During the hearing, she not only voiced her dislike of crypto but also showed how she has no intention of learning about it.
In addition to this, Sen. Warren announced a new crypto-focused bill that she will propose alongside 10 other Democratic senators. This bill would ban crypto service providers from transacting with all Russia-associated addresses as well as sanction anyone found to have assisted or supported a sanctioned entity.
As part of this bill, there is broad language around the definition of “digital asset transaction facilitators,” similar to the problematic language used in legislation last year. Such language would mean anyone who writes code, runs nodes, or does anything else on the blockchain that would allow a sanctioned entity to transact (even if it will be without their knowledge or intent) to also be put under sanctions.
As you can probably guess, such a bill has produced widespread outcry, making it unlikely to pass.
On the other side of the Democratic party, President Joe Biden signed an executive order to support the responsible development of digital assets within the US. Despite the lack of specifics, the order calls for research and clarity around regulation in order to sustain the innovation coming from crypto (which is what the industry wants). News of such a positive attitude from the President made Bitcoin climb.
“The rise in digital assets creates an opportunity to reinforce American leadership in the global financial system and at the technological frontier … The United States must maintain technological leadership in this rapidly growing space, supporting innovation while mitigating the risks for consumers, businesses, the broader financial system, and the climate. And, it must play a leading role in international engagement and global governance of digital assets consistent with democratic values and U.S. global competitiveness.” -The White House
Besides the executive order, other Democrats are voicing their support of crypto due to its potential for financial inclusion by creating an alternative to banks. This argument for crypto has come up multiple times during various Congressional hearings, including the ones I covered previously.
Rep. Richie Torres (D-NY) discussed such a Democratic attitude toward crypto …
“The project of radically decentralizing the internet and finance strikes me as a profoundly progressive cause … You should never define any technology by its worst uses. ... There’s more to crypto than ransomware, just like there’s more to money than money laundering.”
This divide in the Democratic party means several things for crypto. First, the lack of consensus means a progressive regulatory framework is unlikely as crypto-friendly representatives (mostly Republicans) will come in and lead the way. Because of this, regulation (if passed) will be more moderate and less stringent. I say “if passed” because a gridlock in government is likely and may slow down regulation altogether.
From what I can gather, two outcomes are possible: 1) federal regulation will be passed and will be relatively “mild,” satisfying crypto companies in the US, or 2) no regulation will be passed making the US fall behind other countries that are actively working toward developing regulatory frameworks. The second outcome may force the States to adopt policies that don’t line up with what is best for the country and its economy.
In my opinion, the direction of crypto regulation will be decided by the midterm elections. Depending on how Congress swings in November and how much the Democratic rift continues to widen, crypto could be looking at two very different futures.