After FTX: How Congress Is Gearing Up to Regulate Crypto

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The industry is finally earning the priority status it desperately wanted, but for the wrong reasons, says CoinDesk’s Jesse Hamilton.

If familiarity breeds contempt, the crypto industry should strap on a helmet in these opening days of the 118th U.S. Congress because lawmakers know the digital assets sector a lot better than they once did.

The shine is off the bitcoin, and those pre-partisan days of educational hand-holding by industry boosters have been strangled by current events. In a potentially momentous session in which U.S. lawmakers could shape how virtual assets are used around the world, crypto’s drama will overshadow all of it, starting with hearings focusing on the FTX failure.

This piece is part of CoinDesk’s Policy Week.

Before FTX’s Sam Bankman-Fried was charged in an epic fraud that two of his former lieutenants said he orchestrated, he was Washington’s favorite proxy for the crypto world. As one of the industry’s chief ambassadors on Capitol Hill, the approachable CEO spent an awful lot of time with lawmakers, so his unmasking as an alleged villain is that much more damaging for the industry.

Not only that, he and other top FTX officials were a shocking wellspring of campaign funding in the last election cycle, giving directly to no fewer than one in three members of Congress, a recent CoinDesk analysis showed (and indirectly to many more). Now it’s up to those 196 senators and representatives to explain what they’ve done with those contributions from Bankman-Fried and others.

In the room where it happens (to borrow the earworm from “Hamilton”) there’s a stench of crypto’s misdeeds. And the industry won’t have to wait long before getting the first sense of where it now stands in Washington.

“It‘s going to come a lot sooner than folks think,” said Ron Hammond, director of government relations at the Blockchain Association, who expects the relevant committees to get back into investigating the FTX debacle within the next few weeks. “They’re ready to hit the ground running.” Crypto is among topics getting the most immediate attention in the House Financial Services Committee and the Senate Banking Committee. The industry is finally earning the priority status it desperately wanted, but for the wrong reasons.

Headline-conscious lawmakers – many of them recipients of those FTX dollars – will get some early messaging off their chests before legislating begins in earnest. And the political party divide will become starker, dulling the conspicuous joy the industry once felt from how nonpartisan the work was.

The new Republican line: Blame crypto’s missteps on the humans. Don’t indict the innovative technology!

From Democrats: Crypto is an untamed beast that steals people’s life savings and doesn’t seem useful for anything.

“The collapse of FTX definitely has an impact on the way people in the Congress think about this,” Rep. Jim Himes (D-Conn.) told CoinDesk TV earlier this month.

U.S. lawmakers have so far produced no significant laws to establish crypto oversight, despite a number of legislative efforts last year that fizzled out. To change that in this newly divided Congress, the Republicans will have to acknowledge their House majority is razor-thin, and they’ll need some cross-party partnership to move anything in the next two years.

“Nothing is going to happen unless it’s bipartisan,” said Parker Hamilton Poling, a former executive director of the…

https://www.coindesk.com/consensus-magazine/2023/01/23/after-ftx-how-congress-is-gearing-up-to-regulate-crypto/

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