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1/ After a streak of hostile moves by US regulators, with rumors of more to come, fears of a crypto crackdown have never been higher.
It may be tough, but we can chart a path through it.
Let’s discuss the state of crypto policy: what’s happening, why, and what we do next
2/ Before we start, some comfort for the concerned:
The recent flurry of activity is jarring, but it's not a surprise and it doesn't spell doom for crypto in the USA.
Far from it:
We have champions in key roles across government, and our industry is strong and ready to fight.
3/ To begin, some important scene-setting.
2022 was the worst year in crypto history from a policy perspective, by far.
It may have been the worst year in DC for any industry in recent memory.
The whole year was one thing crashing after another, ending with the collapse of FTX.
4/ FTX did massive damage to crypto’s reputation.
For many policymakers, Sam Bankman-Fried was the name and face of crypto.
His fraud burned many of them and cast doubt on the entire industry.
Skeptics entered 2023 emboldened to act.
We're just starting to see the fallout now.
5/ Regulators seem especially inclined toward action due to the makeup of Congress.
In recent years, important government bodies like FSOC and the PWG have said Congress—not the agencies—must decide crypto regulation.
That hasn't happened, and now we have a divided Congress...
6/ …which makes a deal on crypto legislation seem unlikely, given the ideological gap between House Republicans and Senate Democrats.
In turn, the agencies are stretching their authority beyond recognition to “get things done" without Congress, whether the law allows it or not.
7/ With that scene-setting as context for why some regulators are so active to start this year, let's cover what they’re trying to do.
The two most active groups worth watching now:
- The banking regulators (Fed, FDIC, and OCC)
- The financial markets regulators (SEC and CFTC)
8/ First, the banking regulators. Crypto supporters and skeptics both agree that last year’s market turmoil didn’t affect the traditional financial system.
The banking regulators want to ensure it never can, no matter how harsh or extreme the measures they decide to take.
9/ The banking regulators put out a joint statement on January 3 saying banks shouldn't conduct "crypto-asset-related activities" like issuing or holding crypto as a principal.
The Fed made it official with a January 27 policy statement published as a "final rule" on February 7.
10/ That’s bad policy: technology discrimination that limits consumer choice and restricts competition with zero public process.
But, there's no evidence to suggest it's "Chokepoint 2.0," a worst case scenario in which banks are forced to close accounts for all crypto companies.
11/ The banking regulators are focused on stopping banks from conducting crypto-related activities.
Stopping banks from giving dollar-based accounts to crypto-related customers is very different.
Could this change? Maybe, but doubtful.
"Chokepoint" is far easier said than done.
12/ Second, the financial markets regulators.
The SEC has been crypto's chief antagonist for years.
Its views consist of two points:
- every asset with a market price is a security
- every commercial service is a securities transaction I wish this were more of an exaggeration.
13/ The SEC's main tactic is regulation by enforcement, and it struck again last week by labeling Kraken’s staking service a security.
That's frustrating, but it doesn't change much for anyone else.
Settlements aren't the law, and every set of facts is unique.
Others will fight.
14/ No matter how many enforcement actions the SEC and CFTC bring, they are bound by legal reality:
Neither has the authority to comprehensively regulate crypto, neither can obtain it through any amount of enforcement, and neither will ever have it without an act of Congress.
15/ So, what can we do to resist this current attack and advance good policy in the long term?
I’ll give you my top five priorities:
FIRST, we can participate in public process and make our voices heard.
Regulators have to consider public comments before finalizing new rules...
16/ …and enough well-written comments can delay, change, or kill a bad rulemaking proposal.
For example, last year we were all worried about the SEC’s ATS rule, which still isn't final—maybe thanks to an aggressive comment campaign.
Let's write a lot of sharp comments in 2023.
17/ SECOND, we can take the agencies to court if they fail to observe proper process, overstep their authority, or infringe constitutional rights.
For example, will a court let the Fed adopt a "final rule" with no public process?
Let's hold the agencies accountable to the law.
18/ THIRD, we can educate Congress.
Only Congress can answer major questions like how crypto should be regulated.
We still have champions there, but a lot of folks are skeptical now.
Let's make sure everyone on the Hill understands what crypto has to offer, and what's at stake.
19/ FOURTH, we can help Congress do its job.
Part of that job is legislation.
We can bring Congress good ideas for laws that actually work for crypto.
Another part is oversight.
We can explain what the agencies are doing and why it's wrong, so Congress can hold them to account.
20/ FIFTH, we can litigate.
Policy is made in all three branches of government, and we’ve ignored the judiciary for too long.
At the core of crypto is a fight for civil liberty, a fight that calls for impact litigation.
Our best allies may be in the courts.
Let's go find them.
21/ The path forward is challenging, but I’m as optimistic as ever that crypto will flourish in the USA.
If you’re a US crypto company looking to help, reach out to us at @BlockchainAssn.
If you're anyone who cares, consider donating to @fund_defi and @coincenter.
Nitter link to OG thread