Regulating cryptocurrencies isn’t a partisan issue—yet—and Jake Auchincloss wants to keep it that way.
Auchincloss, a Democratic representative from Massachusetts, recently described crypto regulation as being in a “prepartisan” stage, where lawmakers have not yet drawn party lines.
“Right now we haven’t yet kind of put on the jerseys about what side is what for crypto regulation, and I think that’s healthy, because there’s no need for this to become a political football,” Auchincloss said in a keynote address at a virtual event hosted by the Progressive Policy Institute, a Washington think tank. “This is something that thoughtful members on both sides of the aisle should be able to roll up their sleeves and work together on.”
Crypto regulation has been attracting a lot of attention lately, and the prospect of tightening the rules on the movement of digital currencies has taken on a fresh urgency with the Russian invasion of Ukraine and the U.S.-led economic sanctions that followed.
Sen. Elizabeth Warren (D., Mass.) warned this week in a banking committee hearing that cryptocurrencies are the favorite mechanism for hackers seeking to collect ransomware payments, citing an industry analysis that found that Russian-linked entities collected nearly three-quarters of all ransomware revenue last year.
The same lax oversight and tracking challenges that have allowed cybercriminals to move money through crypto also open a door for Russian companies, oligarchs, and other entities to evade sanctions imposed in response to the invasion of Ukraine.
“Now these sanctions are powerful, but Russia can dodge some of this pain by using the same cryptocurrency tools that are currently used by drug traffickers, cybercriminals, and tax cheats,” Warren said.
“Crypto takes the sting out of sanctions,” she added. “The whole point of crypto is that it allows someone to conduct financial transactions without having to go through the traditional banking system or traditional financial intermediaries. Right now, millions of transactions are taking place that are completely unregulated with no one verifying who gets what.”
She has joined with a handful of other Democratic senators in asking the Treasury Department about progress it’s made “in monitoring and enforcing sanctions compliance by the cryptocurrency industry” and expressing concern that rogue states and other bad actors “may use digital assets and alternative payment platforms as a new means to hide cross-border transactions for nefarious purposes.”
Bitcoin sagged a bit toward the end of the week, but that followed a dramatic rally in the cryptocurrency’s price over the first week of Russia’s invasion as the instability of both Russian and Ukrainian currencies sparked renewed interest in digital alternatives.
Advisors have long been grappling with questions about how—or whether—to work cryptocurrencies into clients’ portfolios or financial plans. But questions around crypto go beyond its merit as an investment and raise compliance concerns, as well. William Birdthistle, director of the Division of Investment Management at the Securities and Exchange Commission, has indicated that he is open to clarifying the rules of the road for how advisors can work with crypto.
“I am interested in considering ways to bring order to the new frontier of crypto assets and the expanding use of digital technology,” Birdsthistle said this week at an industry conference, according to a transcript of his remarks. “For investment advisors, I am cognizant of questions about how providing advice regarding crypto assets impacts compliance with the [Investment Advisers] Act, particularly aspects of the custody rule.”
So cryptoregulation could come from multiple fronts, as members of Congress and executive departments and agencies like the Treasury, the SEC, and the Commodity Futures Trading Commission grapple with their role in overseeing digital currency.
Where, then, to start? Auchincloss, the Massachusetts congressman, contends that lawmakers and administration officials are coalescing around stablecoins, which are pegged to the value of existing currencies and are one of the less exotic elements of the crypto space.
“I think we’re seeing increasing alignment both between the administration and Congress that the most important next step for us is stablecoin auditing and disclosure,” he said. “We have got to have a regime for stablecoin auditing and disclosure that is easy to comply with, and that guarantees that if you are asserting that if you’ve got a token backed by the dollar or any other currency that you can prove that, and thereby allow stablecoins to be used as a currency in the crypto realm.”
In the panel discussion that followed Auchincloss’ keynote address, representatives of the crypto industry cautioned that any new regulation must be technology-neutral, and not prejudge one form of crypto in favor of another. Crypto experts also pushed back on the notion espoused by Warren and others that the industry is an unregulated “Wild West.”
Dante Disparte, chief strategy officer at Circle, a technology and payments company, observed that many of the functions of cryptocurrencies are already overseen by well-established laws and regulations, so policy makers should look at how the asset is used, rather than the name it goes by.
“The term of art ‘stablecoins,’ for example, misses the fact that not all stablecoins are created equal,” Disparte said. “Underwrite and review and regulate the economic behavior of the digital asset.”
He argues that there is no need for lawmakers to start from scratch with crypto regulation. Some crypto assets are traded like securities, and there is a well-worn regulatory framework for regulating securities transactions. Others are used as payment instruments, a form of commerce that is heavily regulated through money-transmission rules.
“I think the problem we’re facing is that we’re not bothering to go deep—until just very recently a lot of our public hearings have been superficial,” Disparte said. “Now we’re starting to see hearings that are going deeper into the opportunities, the risks, the distinctions, and so I’m hopeful now that we can get out of a regulatory deadlock and start getting things moving again.”