The US Congress needs to take a strategic approach to Crypto by grabbing the bull by the horns.
The US Congress should stop proposing crypto-related Bills like throwing mud at a wall to see what sticks.
A search on the federal GovTrack website with the keyword “cryptocurrency” reveals eighty-one (81) cryptocurrency-related Bills have been introduced by Congress since 2014. They are spread across various topics: taxation, CBDCs, stablecoins, token classification, commodities aspects, consumer protection, ransomware, mining, foreign issues, and code of conduct for ownership by US officials.
These are good topics because they are part of the nitty gritty aspects of blockchain, but that’s not the right approach. Tackling these matters one by one requires some good knowledge of crypto because they are nuanced topics where details matter. Except for a minority, most Congress Members do not have sufficient knowledge about blockchain and cryptocurrency to go granular on it. Therefore these are not the right starting points hoping that one of them will pass or make a significant impact on the currently stagnating regulatory environment for crypto.
Instead of getting lost in the weeds, Congress needs to be more strategic about it. They should just focus on passing a single Bill as a manifesto declaring crypto as essential to US security, its economy, prosperity, and ongoing technological leadership.
Let’s call it “The US Cryptocurrency Leadership Act”. This Act would direct all government agencies to facilitate and prioritize innovation around blockchain-enabled technologies, cryptocurrency, and their adoption across society, government, and business.
Japan’s Liberal Democratic Party has this text in their recently published Japan’s NFT Strategy for the Web 3.0 Era: “The arrival of the Web 3.0 era is a great opportunity for Japan. But if we continue as we are now, we will surely miss the boat. We should design our national strategy to develop our digital economy in the Web 3.0 era, utilizing NFT and crypto assets, and position it as a pillar of growth for new capitalism.”
This was an excellent example of how to state the intent of a country’s leadership.
As for the US, here’s what the text of this hypothetical Cryptocurrency Leadership Act would look like. The first paragraph is taken verbatim from the White House Framework for Responsible Development of Digital Assets which started off well but went downhill right after.
US Cryptocurrency Leadership Act
The digital assets market has grown significantly in recent years. Millions of people globally, including 16% of adult Americans, have purchased digital assets—which reached a market capitalization of $3 trillion globally last November [2021]. Digital assets present potential opportunities to reinforce U.S. leadership in the global financial system and remain at the technological frontier.
While US government agencies and regulators are already aware of the potential risks pertaining to their oversights, the US needs to prioritize the innovative and entrepreneurial aspects of this emerging market to allow it to achieve its full economic growth potential.
Blockchain technology and cryptocurrency are essential innovations that the US must lead in. Just as the US achieved leadership with e-commerce and web-enabled businesses during the early days of the Internet, we need to seize the opportunity of this next technology phase representing the Internet of money.
Today, the US has some catching up to do. The lack of regulatory clarity has already hindered the full entrepreneurial potential of this sector.
More than one million tech jobs in the US are at risk of fleeing. Thousands of companies are already involved and affected. Billions of dollars in venture capital have been poured into startups and potentially promising projects.
The US leadership will have implications for our economic security, trade, and the strength of the US dollar. Therefore, the US must develop a sound strategy focused on blockchain-based technologies and cryptocurrencies, and let innovation play the role it should.
The risks within cryptocurrency are manageable, but they should not become impediments to making progress toward the propagation of this technology.
With that in mind, we are ordering the SEC to reverse its current course and provide additional clarity and openness toward cryptocurrency. Instead of focusing on enforcement actions that are costly and damaging, they should rather dig into their panoply of existing capabilities, and redirect their resources to start updating rules and regulations pertaining to cryptocurrency and blockchain-enabled technologies.
Within 90 days, being the lead agencies, the SEC and CFTC must come back and present together updated regulatory actions that are coordinated and aligned within their current scope and mandates in order to make crypto more friendly in the United States.
Coordination is important and should be accomplished vertically within each topic instead of horizontally by governmental agencies. Today, various departments have published what they see from their vantage point, but this siloed approach has resulted in overlapping and sometimes conflicting conclusions (e.g. the SEC disagreeing with the CFTC on the status of Ethereum). Instead, we need to tackle these various topics, one by one across agencies, which would result in a cohesive view that is coordinated and harmonized. For example, there should be a single token classifications report that transcends any particular agency treatment. This approach would yield more clarity because the market is organized that way.
Here are the parts that should be addressed by this strategic report, along with our expectations on the direction that should be taken.
- Exchanges: create a new license class for digital assets exchanges crypto including details on risk, KYC/AML, and reporting standards, along with specific requirements for all allowed services: listings, custody, brokerage, audits, fees, marketing, ancillary services, etc.
- Tokens: we should allow token-based innovative business models to be tested, iterated upon, and perfected in order to maximize their chances for widespread adoption at scale.
- ICOs and token generation events: we need to allow tokens to be created, and a path for them to become tradable at a given time in their maturity cycle.
- Licenses: we need a single place where all required crypto-related licenses are clearly visible in order to make navigation of the regulatory maze more approachable.
- Exchange Traded Funds (EFTs): EFTs proposals should be considered without prior bias or prejudice against them for being in the crypto space.
- Consumers: US consumers should be allowed to trade cryptocurrency or participate in emerging token projects at some maturity levels, and based on risk factors related to their income and net worth brackets.
- Disclosures: disclosure standards for token-based projects should be published and followed by tokens that are listed on US exchanges.
- AML/KYC/CFT: existing processes around these practices should be rolled in
- Taxes: clarity around tax treatment for crypto assets, including staking, and other DeFi-related income.
- NFTs: we need confirmation that NFTs are not securities, rather they are collectibles. They are potentially the future of loyalty programs, community rewards, and membership perks, therefore the NFT market shouldn’t be burdened by regulatory uncertainty.
- DeFi: DeFi is not perfect, but it’s innovative. It should be allowed to continue growing with the right guardrails, not roadblocks.
- DAOs: DAOs should be allowed to register as corporations.
- Banks: banks should be allowed to offer on/off ramps to crypto, hold a % of their assets in cryptocurrency, become certified custodians, and own or back USD-based stablecoins.
- Mining: Responsible cryptocurrency mining practices should be allowed according to published energy consumption standards. No state should ban mining.
In the meantime, the SEC and the CFTC should place a moratorium on all crypto-related lawsuits, except for clear fraud cases.
With this Act, it is useful to compare the advent of blockchain technologies and cryptocurrency to the arrival of the automobile at a time when the transportation infrastructure consisted of dirt roads. Gradually, the shift was made to paving roads and later creating highways, along with updating the rules of conduct. These updates allowed cars to reach their full potential as they became faster and safer.
Today, if we don’t allow for the paving of new infrastructure rails and if we don’t modernize parts of our regulations, we will see a disastrous mismatch similar to what might have happened if fast/modern cars would have continued to drive only on dirt roads: chaos, traffic jams, and dust in the air would have been part of that outcome.
This Cryptocurrency Leadership Act also calls for the creation of a joint government-private sector salvation committee consisting of a bipartisan group of 10 government members and 10 private sector leaders working hand in hand to oversee the direction and implementation of this new chapter in US cryptocurrency policy.
Let’s take the high road on crypto. Let’s be strategic about it.
Let’s hope the US Congress can start thinking about passing this one Act to unlock this industry’s potential, unchoke the choking, and pave the way for US leadership.