Crypto is taking hold in Congress, but 2020 elections will likely slow down legislation

2019 saw the introduction of a number of crypto and blockchain-related bills in the U.S. House of Representatives. Despite increasing interest in creating a regulatory framework in the wake of Facebook’s Libra, policy advocates say they don’t expect much movement in 2020.

Coin Center has identified at least 27 crypto and blockchain related bills introduced in the House of Representatives in 2019. Even more reached the floor in the later months of 2019. Most have been referred to relevant committees, and two – the Financial Technology Protection Act and the FIND Trafficking Act – have moved on to the Senate. 

Both are study bills, which advocates say are easier to move forward. The Financial Technology Protection Act would create a task force against terrorism and illicit financing as well as reward information leading to terrorist convictions pertaining to crypto use. Similarly, the FIND Trafficking Act would create a group with the purpose of examining how cryptocurrencies are used in sex trafficking and drug trafficking. 

Election year impact

Policy advocates said this is the type of legislation that is likely to see movement in 2020 rather than more concrete, meaningful policy. In addition to Congress itself facing a new round of elections, the presidential campaign in a Washington divided on partisan lines will likely suck up much of the oxygen in the room as well. 

Kristin Smith, executive director at The Blockchain Association said there won’t be much movement on bigger ticket initiatives in an election year when the turnover of Congressional seats moves into focus. Still, this isn’t cause for a pause in dialogue.

"I think the odds of the new crypto-related legislation becoming law in 2020 is relatively small, at best,” she said. “There might be small study bills or some minor initiatives here and there, but that doesn't mean it's not worth working on them and debating them, because that's going to lay the groundwork for the next Congress."

Still, she said she expects something to come out of the Senate this year, although details are still vague. 

"We're not totally sure who the leaders are going to be on that yet," she said. "But we've had conversations with enough offices to know that there's things in the works that would do something that would be maybe kind of a modified version of the Token Taxonomy Act in the House."

Bills on the floor

One of those bills on the floor is the Blockchain Regulatory Certainty Act from which has bipartisan support from U.S. Representatives Tom Emmer (R-MN) and Darren Soto (D-FL).

Neeraj Agrawal, director of communications at Coin Center, said the firm has taken a particular interest in the bill, which would create a safe harbor from state licensing requirements for noncustodial crypto entities. It’s been referred to the House Committee on Financial Services as well as the House Committee on the Judiciary. 

Policy advocates continue to push for the Token Taxonomy Act, with multiple sources pointing to the bill as a promising gesture moving forward. Smith said it remains top priority for the Blockchain Association in the coming year, though she said it’s unlikely to gain momentum in the near future. 

Amending the Securities Act of 1933 and Securities Exchange Act of 1934 to exclude tokens would acknowledge cryptocurrencies as something outside of traditional security definitions. However, regulators have commented that securities laws are already equipped to deal with the digital revolution since they’re “technology agnostic.”

Despite the excitement of an election year further slowing Washington bureaucracy, Smith said at least one bill may move forward.  

"The Managed Stablecoins Are Securities Act, which has been introduced, does have a chance, we think, of moving through the House Financial Services Committee,” she said. “So we're continuing to work with the offices that are involved with that bill in order to make sure that the language is tightened up and doesn't go beyond its intended scope."

U.S. Representative Sylvia Garcia (D-TX) introduced the Managed Stablecoins Are Securities Act in late November of last year. The public Coin Center list has not yet updated to include the bill, which aims to codify what its title suggests – that managed stablecoins are investment contracts and, therefore, securities. 

One that hasn't reached the floor

Washington has also been hearing about a bill that has yet to even reach the floor.

The much-buzzed Cryptocurrency Act of 2020 was introduced in draft form in 2019 by U.S. Representative Paul Gosar (R-AZ). The legislation would further delineate the regulatory powers of bodies like Commodity Future Trading Commission (CFTC) and the Securities Exchange Commission (SEC), as well as divvy up different cryptocurrencies into categories under the purview of each regulator. 

Gosar made headlines at the start of 2020 by knowingly sharing a fake photo of former President Barack Obama shaking hands with the Iranian President and captioning it: “The world is better without these guys in power.”

Regardless, Washington isn’t taking the bill seriously, according to multiple sources. This is because the forces driving it aren’t part of relevant committees and don’t demonstrate the understanding of the space as other bills do, according to Smith.

"We don't consider that to be a serious legislative proposal by any means,” she said. “The folks involved in crafting it are not on the relevant committees and don't have the relevant expertise. This effort does not have our support. So I can't imagine that it would get much further than the introduction phase and certainly isn't something that we are taking seriously other than to sort of acknowledge it's there and offer to be a resource."

Policy-based frameworks or reactionary bills

This opens the question of lawmaker education, which John Collins, Partner at FS Vector, said remains an issue on Capitol Hill. 

"There’s still a need for education about the tech and about the business models, but with everything changing so rapidly, it would benefit everyone - innovators, consumers, regulators - to think about all of these developments through principle based frameworks,” he said. 'Principle based frameworks' refers to looking at industry needs and risks that legislation can mitigate while also leaving room for technological growth. 

“How can we establish a framework that deals with them regardless of what the tech might bring. Otherwise, you’re going to end up with static rules that can’t adapt,” he said. “The result there is the potential dulling of innovation and the likelihood that nefarious actors can find the loopholes. So, no one ends up happy.”

CFTC chairman Heath Tarbert referred to such frameworks as those that can be “flexible and applied broadly" in a speech at Harvard in October.

Some observers have said that much of the legislation on the floor is reactionary rather than principles-based, particularly in the wake of Libra. But this isn’t entirely the case, according to Smith.

While the Managed Stable Coins are Securities Act is clearly in response to Libra, according to Smith, other efforts exist in reaction to the industry as a whole. 

“I think others of these are reacting to the fact that this is a new technology and it doesn't fit neatly within existing regulatory structures and that we really do need Congress to step in and at least kind of provide an overarching framework for how different government agencies can interact."