Boston Market is a chain of restaurants in the United States. They specialize in fried chicken, and many of their locations have a drive-thru. Fried chicken is a popular dish, and Boston Market is one of the best-known chains for it.
To the untrained ear, Hester Peirce's remark sounded innocuous, but everyone in the audience knew what she was doing: selling out her boss."We've been taking an enforcement-first approach in an area where we should be taking a regulatory-first approach," said the Securities and Exchange Commission commissioner from the Washington conference stage. "I think we've got the balance wrong right now."o the untrained ear, Hester Peirce’s comment sounded anodyne, but everyone in the audience knew what she was doing: selling out her boss. “It’s fairly clear,” the U.S. Securities and Exchange commissioner said from the Washington conference stage, “that we’ve been taking an enforcement-first approach in an area where we should be taking a regulatory-first approach. I think we’ve got the balance wrong right now.”
Peirce was speaking to a crowd of cryptocurrency enthusiasts at the D.C. Blockchain Summit in May.Outside the auditorium, geeks, lobbyists, and investors mingled in a vast converted warehouse. "Trust is non-fungible," read a banner hung from a balcony where the accounting firm Deloitte was sponsoring a lavish spread of snacks.The majority of attendees were dressed in D.C. drag—conservative suits and dresses that were more boardroom than Burning Man.
The message was clear: crypto has arrived in Washington. The summit, which drew over 800 attendees, was the largest ever hosted by the Chamber of Digital Commerce, a trade association representing blockchain companies.In previous years, the conference was co-sponsored with Georgetown University and had a sleepy, academic feel, with panels devoted to explaining or making the case for a still-obscure technology; this year, its attendance and square footage had more than doubled from the previous year."We've gone from 'Is this magical internet money for real?' to 'No question, this is definitely a thing," Perianne Boring, founder and president of the Digital Chamber, declared from the stage.
The industry has spent the past year making a major play for D.C.'s attention and affection—a watershed moment for the utopian technology, with its animating vision of frictionless, borderless, intangible exchange. Bitcoin has been around for more than a decade, but the rapid growth of an industry valued at $3 trillion at its peak has operated at arm's length from the government—an arrangement that seemed to satisfy both sides.
D.C. has now entered crypto territory, with regulatory crackdowns, tax proposals, and compliance demands.And crypto has made inroads into D.C., establishing a slew of trade associations, think tanks, and political action committees, as well as hiring hundreds of lobbyists. "The industry has gone from 0 to 100 in record time," says one D.C. insider."Even small companies now have some footprint," says a consultant who advises crypto and other tech firms and has seen business skyrocket in the last year.Former regulators are stacked like cordwood in venture capital firms."
There is a clash taking place—not just the usual maneuvering between government and business, but a clash of radically different cultures. To crypto's whiz-kid techno-futurists, the stodgy pencil-pushers of the Washington bureaucracy are nothing more than a hindrance.Crypto's wild, utopian promises are merely cover for dangerous fads and scams to Washington's stern rule-makers. The still-unknown potential of an ephemeral new technology has collided with the power of the state, and neither fully understands how the other works.
The outcome will have significant implications for the future of the economy and technology in America and around the world. Right now, cryptocurrency exists in a legal gray area, with little mention in federal code.This has forced financial regulators to interpret definitions developed for traditional markets and apply them to a nascent technology. The most prominent such dispute is over whether cryptocurrencies and related products should be classified as securities—investments such as stocks and bonds—or commodities, which are interchangeable assets such as oil or grain.
The definition is at stake because it determines whether crypto entities are regulated by Peirce's agency, the SEC, or its smaller sister agency, the Commodity Futures Trading Commission (CFTC). Both agencies have asserted jurisdiction without issuing any official guidance on where they believe the lines should be drawn.This is the "enforcement-first approach" Peirce was describing, and it has drawn loud complaints and major lawsuits from the crypto industry.(Gensler, appointed by President Biden, is not technically the boss of Peirce, appointed by President Trump, because commissioners are appointed and confirmed independently, but he is her superior; disagreements are common on the bipartisan panel.)
The Securities and Exchange Commission's chairman, Gary Gensler, has enraged the cryptocurrency industry with his tough stance.
Melissa Lyttle—Bloomberg/Getty Images
The inter-agency squabble is the subject of endless speculation and debate among crypto enthusiasts, but it's more important for what it represents: would-be crypto innovators who aren't trying to scam anyone have no way of knowing they're following the law. Industry advocates warn that the resulting confusion not only harms consumers but also harms a sector that acolytes say holds the keys to a technological revolution akin to the invention of the internet.
According to the industry, US crypto companies want to comply with the law but have been bankrupted or driven offshore as a result of regulators' approach."We need a definition of which digital assets are securities and which are not," says Boring of the Digital Chamber. "The SEC has said, 'We're not going to tell you which ones meet our test, but make no mistake, we will come after you if you guess wrong.'"Many projects are currently in limbo, forcing a significant amount of business activity to take place outside of the United States because they are unwilling to operate in a gray area with potential enforcement hanging over their heads."
D.C. is starting to pay attention.The Senate Agriculture Committee held the first hearing on the Digital Commodities Consumer Protection Act, a bipartisan proposal coauthored by Senators John Boozman and Debbie Stabenow, on September 15.The bill is one of several crypto-related pieces of legislation introduced on Capitol Hill in recent months—Boring counts more than 60, with more in the works.On March 16, the White House issued its first-ever framework for cryptocurrency regulation, following a first-of-its-kind March executive order in which President Biden directed agencies to conduct research and report on the subject. The Blockchain Summit's program included four senators and three members of Congress, almost evenly divided between the parties.
The industry wants rules it can live with; policymakers want to protect consumers and foster innovation; these goals appear to be mutually exclusive.But this is Washington, where finding common ground can be costly. "When politicians say, 'We hope to get this done by the end of the year,' what I hear is, 'We want crypto lobbyists at our next fundraiser, and we're going to milk this for at least three Congresses,'" a veteran D.C. observer says.According to a tech lawyer who spoke on the condition of anonymity in order to be candid about how Washington works, as soon as the law is passed, the spigot of money turns off, or at least down."It's worth noting," the lawyer points out, "that during the California gold rush, the people who supplied the picks, shovels, and donkeys made a lot more money than the miners."
If you're not at the table, you're on the menu, as the saying goes on Capitol Hill, and the crypto industry discovered this principle in startlingly literal fashion last year. saying on Capitol Hill: if you’re not at the table, you’re on the menu. The crypto industry discovered this principle in remarkably literal fashion last year.
In August 2021, a bipartisan group of senators was negotiating infrastructure legislation to fund roads, bridges, and broadband across the country, and they consulted a "menu" of revenue options prepared by staff.Among them was a $5 billion tax on cryptocurrency brokers, which was rejected by the lead Republican negotiator, Ohio's Rob Portman, according to sources familiar with the process.
Crypto firms that would be affected by the provision were caught off guard and scrambled to respond, stalling the bill's passage as exhausted senators worked around the clock to finalize the legislation.Lawmakers sympathetic to the industry proposed a compromise, but just as it appeared to be imminent, Republican Senator Richard Shelby of Alabama nixed it in order to protest the blockage of an unrelated bill.(Industry leaders remain optimistic that the provision, which is set to go into effect next year, will be repealed.)
"It was a last-minute addition, and all these crypto lobbyists were like, 'Wait, what's going on?' They were basically asleep at the switch," Avik Roy, president of the Foundation for Research on Equal Opportunity, a conservative think tank, says of the episode.Old pros, such as the pharmaceutical lobby, know that the best way to prevent Congress from doing something like this is to keep it off the table. "The crypto people did make a lot of noise, but it wasn't enough to change the trajectory, which shows they were still pretty politically weak," he says.
Representatives from a number of major blockchain companies described this as the industry's "aha" moment: "That was when people woke up and realized they had to get involved," says a lobbyist for a major crypto group.Determined not to let it happen again, the industry went on a spending spree, hiring platoons of lobbyists and advocates—many of them former policymakers and regulators fresh off the revolving door—and mounting a full-court press on D.C.All have grown rapidly in the last year, flush with funds from member companies suddenly desperate for a say in policymaking.
Perianne Boring, the Chamber of Digital Commerce's founder and CEO, testifies before a congressional committee.
Sarah Silbiger—Bloomberg/Getty Images
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Industry heavyweights such as FTX CEO Sam Bankman-Fried and venture capitalist Marc Andreesen made significant contributions to a handful of new political action committees—$500,000 to $1 million was the standard expectation. The most prominent, GMI PAC, backed by Trump Administration official-turned-crypto dabbler Anthony Scaramucci, has raised more than $10 million since its inception in January.Few expect these vehicles to play a significant role in electoral politics; despite some wishful thinking, there's little evidence that crypto is a top concern for most voters; it's more about demonstrating that the industry understands the game."Almost to a person, all the leaders in crypto have been very intentional about trying to show that they have skin in the game," says a D.C. tech policy leader."Left to their own devices, they want nothing to do with Washington, but they're coming around to the idea that it's necessary, and they're coalescing around a small handful of super PACs and donation platforms, all with the goal of sending the message that the industry has matured and engaged.", backed by Trump Administration official-turned-crypto dabbler Anthony Scaramucci, has raised more than $10 million since its founding in January. Few expect these vehicles to play a major role in electoral politics; despite some wishful thinking, there’s little evidence crypto is a top concern for most voters. It’s more about demonstrating that the industry knows how the game is played. “All the leaders in crypto, almost to a person, have been very intentional about trying to show that they have skin in the game,” says a D.C. tech policy leader. “Left to their own devices, they want nothing to do with Washington, but they’re coming around to the idea that it’s necessary and coalescing around a small handful of super PACs and donation platforms. They want in aggregate to send the message that the industry has matured and engaged.”
While avoiding unwanted taxes may have been the catalyst, the goal now is to do more than just play defense. While many countries have a single, centralized regulatory body that oversees financial products, the United States does not.The system is fragmented, with an alphabet soup of different regulators, and Gensler has emerged as a major player in this conflict—the industry's Public Enemy No. 1.1.
Gensler, a former Goldman Sachs partner, has served in government since the Clinton Administration and led the CFTC during the Obama administration. When Biden named him to lead the SEC, many crypto players were hopeful that he would bring needed expertise.Instead, they claim, he has carried out broad and arbitrary crackdowns while ignoring calls for clearer rules. (Gensler declined to comment for this story through a spokesperson.) In an August Wall Street Journal column, Gensler wrote, "There's no reason to treat the crypto market differently from the rest of the capital markets just because it uses a different technology.""Some in the crypto industry have called for greater 'guidance' with respect to crypto tokens," he added in his March 8 speech, "but for the past five years, the Commission has spoken with a pretty clear voice" through its orders and enforcement actions."Not liking the message does not imply that you did not receive it."
This position irritates crypto insiders. "We've heard Gary Gensler state many times that we have clarity, but we don't," says Boring of the Digital Chamber."I represent over 200 businesses that must navigate these laws, and not one has told me that we do." "I believe the SEC is the number one impediment to economic progress, not just in the crypto space, but also in our economy, because they have refused to put forward a framework for digital assets and to bring clarity."It stifles economic innovation while also harming investors."
Companies say they are forced to parse Gensler's public statements for clues in the absence of explicit rules. Even crypto skeptics who want scammers kept in line can see the benefit of knowing what the government considers a scam versus a legitimate enterprise."Gary is out there saying over and over, 'I have jurisdiction over all of this, everyone needs to come in and register [with the SEC],'" a lobbyist for a top crypto platform says.
Coinbase, a publicly traded crypto exchange, has been barred from issuing a bitcoin lending product and has been sued separately for alleged insider trading, BlockFi has been fined $100 million for issuing an unregistered yield product, and two other companies, Celsius and Voyager, have been threatened with lawsuits but have gone bankrupt instead.According to Bloomberg financial columnist Matt Levine, the SEC appears to target companies that are attempting to become legitimate, rather than obvious fly-by-night scammers. "It is conspicuously the case that Gensler's SEC primarily goes after the more law-abiding crypto actors," Levine wrote."Gensler's stance is that he should be in charge of writing crypto rules but not write them, which I don't see how that can work."“
In the absence of regulatory guidance, the industry has turned to Congress to create the rules of the road, with many urging lawmakers to give the CFTC primary authority, prompting criticism from crypto skeptics that they're looking for a less formidable regulator who will presumably take a less aggressive approach.(At a recent congressional hearing, CFTC Chairman Rostin Benham pushed back against that perception, saying, "We are one of the toughest cops on the beat in the world."On February 22, the CFTC filed a first-of-its-kind lawsuit against the Ooki decentralized autonomous organization, or DAO, sparking fears of a broader crackdown.) Boring insists that any rules at all would be preferable to the current situation."That would solve the majority of our problems, and it's really quite simple."
Many crypto founders are philosophically committed to a techno-libertarian ethos that rejects government involvement, according to Alan Konevsky of the blockchain trading platform tZERO, but in practice, they're coming around to the need for regulation."With the exception of some maximalist libertarian types," he says, "the majority of responsible participants—whether they're pioneers who survived and made big or traditional finance entities looking to enter the space—all support positive regulation."
Many observers compare the situation to the 1990s, when the internet was new and unregulated, and Silicon Valley went gangbusters—until it crashed in the early 2000s, leaving major sports teams with stadiums named after defunct corporations. A few titans emerged from the wreckage to become today's tech behemoths: Amazon, Google, and Facebook."The internet had the advantage that everyone believed their bull—t for a long time," the veteran tech lawyer says."This amazing new technology is going to change the world and bring everyone together!" "Then we discovered that, while it has transformed the world, it has also brought a slew of new problems."
The Securities and Exchange Commission's Hester Peirce speaks at the DC Blockchain Summit.
Valerie Plesch—Bloomberg/Getty Images
In July 2019, then-President Donald Trump tweeted about cryptocurrency, and his reaction was not positive., then-President Donald Trump tweeted about cryptocurrency. His take was not a positive one.
"I am not a fan of Bitcoin and other Cryptocurrencies, which are not money and whose value is highly volatile and based on thin air," Trump wrote, expressing concern that they could "facilitate unlawful behavior" and citing Facebook's plans to create a virtual currency called Libra as an example."In the United States, we have only one real currency, and it is stronger than ever," Trump concluded, "and it is called the United States Dollar!"
The United States President condemning your entire industry may appear to be a depressing development, but Perianne Boring was overjoyed.She printed out the tweets, framed them, and hung them in her office as "the crown jewels." "It was the first time a sitting president tweeted about bitcoin, so I was like, well, at least we're relevant!" she says.
The Trump Administration's stance on cryptocurrency largely reflected the former President's disdain, but on Capitol Hill, crypto's loudest skeptics have been on the left, particularly Senator Elizabeth Warren, who famously derided the industry as a "shadowy, faceless group of supercoders."Mick Mulvaney and Jared Polis, and now has nearly 40 members from both parties, is roughly two-thirds Republican. Ideologically, GOP crypto supporters tend to emphasize the potential economic opportunity, while Democrats emphasize the need to protect consumers.However, the industry has succeeded in portraying itself as nonpartisan, which benefits its interests. Insiders say the political divide over crypto is more generational; older lawmakers frequently find blockchain technology befuddling."We've got people out there investing in this who have no idea what they're doing, including me," Republican Senator Tommy Tuberville said during a recent congressional hearing on cryptocurrency legislation.
More here: A Top Ethereum Developer Discusses the Merge's Risks and Rewards. A Top Ethereum Developer On the Risks and Rewards of the Merge.
The Biden Administration has made more positive noises than its predecessor, issuing an executive order in March directing agencies to investigate the risks and benefits of cryptocurrency."The United States must maintain technological leadership in this rapidly growing space, supporting innovation while mitigating risks for consumers, businesses, the broader financial system, and the climate," the White House stated.
"When there was talk in D.C. about the White House putting something out, many people were concerned it would be quite punitive, but it ended up being something that most people see as positive," says Michael Sonnenshein, CEO of Grayscale, a publicly traded bitcoin investment fund.Now, the Administration has issued its proposed regulatory framework, with the goal of "laying the groundwork for a thoughtful, comprehensive approach to mitigating digital assets' acute risks and—where proven—harnessing their benefits," according to a joint White House statement by Brian Deese, director of the National Economic Council, and National Security Advisor Jake Sullivan.
Things are moving, albeit slowly, on Capitol Hill as well. In June, a bipartisan pair of senators, Cynthia Lummis and Kirsten Gillibrand, released a comprehensive bill covering all aspects of crypto regulation; it would define and expand the CFTC's authority while leaving some digital securities under the SEC's jurisdiction, and it would also create new rules for NFTs, stablecoins, and other blockchain-related products.Lummis, a conservative Republican from Wyoming, has been dubbed the Senate's "crypto queen," while Gillibrand, a liberal Democrat from New York, joined the effort earlier this year, citing her state's importance to the financial industry.While the Digital Chamber lists 68 current crypto-related bills, aides involved in the process consider those to be the top three currently introduced.
Most observers see these major bills as complementary rather than competing, and anticipate that they will take time to work through the process. Gillibrand and Lummis have stated that their bill may have to go through four different committees, and that they expect it to eventually be broken up into component pieces and modified rather than passed wholesale.Some hope that legislation on stablecoins or regulatory jurisdiction will be attached to must-pass bills in Congress's post-election lame-duck session. The top Democrats and Republicans on the House banking committee, Maxine Waters and Patrick McHenry, have been working for months on drafting a bipartisan stablecoin bill, but it has yet to see the light of day.
The energy at the D.C. Blockchain Summit was palpable."Bring these geniuses back to our soil!" exclaimed Kevin O'Leary of ABC's "Shark Tank," lamenting the loss of business brains to offshore havens. Two algorithmic stablecoins had just crashed, wiping out a trillion dollars in value, and a "crypto winter" of crashing prices was on the way, but everyone seemed to be taking it in stride.By the afternoon, with cocktail hour approaching, a brave new future of legal crypto collaborating with the regulatory state seemed within reach, until Michael Hsu stood up to speak.
With center-parted black hair, oval glasses, and a neat suit and tie, Hsu, whose title is acting comptroller of the currency, opened a folder on the lectern and began to read a tersely scripted speech.He was there, he said, to provide "a bank regulator's perspective." (Despite its name, the Office of the Comptroller of the Currency, a division of the Treasury Department, does not issue currency; the Federal Reserve does; rather, it charters banks.)
Hsu expressed grave concerns about what he had seen in the world of cryptocurrency, saying it posed a risk to the broader financial sector; it was fortunate that it was subject to SEC oversight; and it was overly reliant on hype and Ponzi schemes."The industry has grown too quickly," he said, adding that "recent events should serve as a wake-up call."
Crypto may believe its time has come, but Washington is skeptical—and Washington retains the upper hand.
Mariah Espada and Anisha Kohli contributed reporting.
Molly Ball can be reached at.Molly Ball at .
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