The Biden Administration Is Easing Cryptocurrency Restrictions (A Vibes Analysis)

The Biden administration’s stance on cryptocurrencies appears to have softened. I feel comfortable saying this, despite the years-long “whole of government” assault on the industry, because of some key breakthroughs in recent weeks.

Note: The opinions expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates. This is an excerpt from The Node newsletter, a daily roundup of the most crucial crypto news on CoinDesk and beyond. You can sign up to get the full service newsletter here.

First, and perhaps most significantly, Monday’s news that the U.S. Securities and Exchange Commission (SEC) may be preparing to approve the commercial exchange traded funds (ETFs). This would represent a major turnaround for an asset class that was presumed dead upon arrival, especially considering that the securities watchdog recently probed major Ethereum-related institutions.

Although much of this is just speculation, based in part on hearsay (i.e. “sources with direct knowledge of the situation”), it is significant that the SEC required potential ETH ETF exchanges to change their documentation quickly. It would be a strange move if the agency intended to reject these requests entirely.

Just yesterday, Bloomberg Intelligence estimated the probability of SEC approval of ETH spot ETFs at 25%. Today, there is a 75% chance that these products – which would likely attract institutional capital into the second-largest crypto asset by market cap, in the same way Bitcoin has benefited from its own ETF cluster – will launch this year. (The SEC is expected to make a decision on VanEck’s spot ether ETF on May 23.)

Second, a bipartisan bill called the Deploying American Blockchains Act of 2023 passed last week. a margin between 334 and 79 by the representatives of the House. While modest in scope, the bill would allow the Secretary of Commerce, currently Gina Raimondo, “to take necessary and appropriate actions to promote the competitiveness of the United States” in the blockchain industry.

This comes ahead of the Senate vote on the Financial Innovation and Technology for the 21st Century Act (FIT21), considered the most significant piece of cryptocurrency legislation with the greatest likelihood of actually becoming law. As my colleague Nikhilesh De astutely points out:

“House Democratic leaders on the Financial Services and Agriculture Committees have told their members that, while they oppose the FIT21 bill, they will not actively rail against it – in other words, they have essentially told their members to vote as they see fit.”

This is similar to recent House and Senate votes to repeal the SEC’s controversial Staff Accounting Bulletin 121, which imposed strict capital requirements on cryptocurrency custodians and all but precluded the possibility of banks entering this space (strongly opposed by both the cryptocurrencies than from that of cryptocurrencies). TradFi Community).

The theory is that when President Joseph Biden promised to veto the measure to repeal SAB121, he cleared the way for members of congress, including prominent Democrats like Senate Majority Leader Chuck Schumer (D-NY) and the Finance Committee Chairman Ron Wyden (D-OR). – vote according to conscience.

It remains to be seen whether Biden will veto the measure, despite the fact that the independent Government Accountability Office (GAO) said the SEC inappropriately enforced the guidelines. However, the important thing here is that sound, bipartisan regulation of cryptocurrencies is possible, despite opposition from figures like arch-cytoskeptic Senator Elizabeth Warren (D-MA).

By the way, Warren may lose influence in the Biden administration. Yesterday, the president of the Federal Deposit Insurance Corp Martin Gruenberg announced he would resign after Senate Banking Committee Chairman Sherod Brown called for his resignation.

While the move does not directly affect cryptocurrencies, it is worth mentioning that Gruenberg is a known confidant of Senator Warren and their view on cryptocurrencies is largely different. Under Gruenberg’s leadership, for example, the FDIC took a hard line against cryptocurrencies during the 2023 financial crisis that brought down three mid-sized banks.

Although he extensively cited poor risk management and incompetent leadership, the The FDIC also said so Signature Bank’s “association and dependence on cryptocurrency industry deposits” was a major cause of its failure in its report. That same year, the agency officially added cryptocurrencies to its annual report on the risks faced by US banks and began engaging in “robust oversight discussions” with the companies under his charge.

Furthermore, Castle Island Ventures co-founder Nic Carter considers Gruenberg one of the major “architects” of what he called Operation Choke Point 2.0, or a series of maneuvers by the US government to systematically cripple the cryptocurrency industry (the name is a nod to the Obama-era effort to bust unsavory industries). Indeed, following the collapse of FTX, the White House issued its first information sheet related to cryptocurrencies, essentially calling for a crackdown.

To be sure, there are some important caveats to consider here. First, Gruenberg resigned under political pressure following Wall Street Journal report on widespread evidence of sexual harassment at the FDIC. The 70-year-old himself has not been accused of harassment, yet he has allowed a toxic workplace culture to fester – which is why Senator Brown called for his ouster (which Senator Warren called “politically motivated”).

All of this is to say that cryptocurrencies are not a motivating factor here, although some political commentators see Gruenberg’s situation as a sign of the Warren camp’s waning influence. For example, John Deaton, who is challenging Senator Warren for his senatorial seat this November, said it was “shameful” how Warren “circled the wagons to keep one of his fallen puppets in place.” misfortune.”

It is also important to note that Congress is not the White House, and the White House is not the SEC. In other words, there is no real reason to assume that the Biden administration is suddenly telling Gary Gensler or lawmakers to go easy on cryptocurrencies. These are all discrete events, but they are all positive developments for cryptocurrencies.

As for the possibility of ETH ETF approval, the current thinking is that the SEC resisted it because it was not having productive meetings with potential issuers. And “the fact that their meetings have become productive more recently does not necessarily mean there has been a policy reversal,” as CoinDesk politics expert Jesse Hamilton put it.

But what if there really was a driving force behind all these developments? What explains the widespread sea change? And why would a Democrat-controlled government suddenly become pro-crypto now?

“The backdrop to all of this is an election in which the standard-bearer of the Republican Party, former President Donald Trump, explicitly appealed to crypto voters as part of his strategy,” De said.

Indeed, the former president has apparently sensed that the crypto contingent is some sort of wealthy political force and has curryed favor with it. There are some cynics who argue that the billionaire real estate developer is primarily motivated by his stock markets (Trump has issued several series NFTs and holds a fair amount of ETH and other tokens), but that seems like an unnecessarily narrow view.

The alignment makes perfect sense: Cryptocurrencies get people’s attention. And Trump likes to get attention. Cryptocurrencies also make a certain type of people angry, and these happen to be the same people Trump likes to make angry. Cryptocurrency supporters also like powerful people who are willing to speak positively about cryptocurrencies. And Trump likes praise for him.

And while both parties could conceivably claim cryptocurrency’s “apolitical” narrative for their own, there’s something to the idea that the industry’s somewhat contradictory situation is rooted in Occupy Wall Street-era populism while simultaneously more frequently associated with the “hilariously rich” is undeniably Trumpian. To some extent, I’m surprised it took Trump this long to convince himself.

Which brings us to the main point: why now? It is clear that Trump has come out in support of cryptocurrencies because it is a wedge issue that he can use against his rival, President Biden. While the general public is likely not informed of the concrete politics of cryptocurrency regulation, a surprising number of registered voters hold cryptocurrencies and have positive sentiment towards them. In particular, nearly 25% of self-identified independent voters (i.e. the “swing voter” key) have purchased cryptocurrencies. And that number will only increase over time, especially after the launch of crypto ETFs.

On the other side of the equation, as Trump has cast himself as an opposition figure to the Biden administration’s slow simmering war on cryptocurrencies (which has literally won over at least a handful of voters who despise his other policies), the most simple to To solve the problem, Biden needs to do a 180 on cryptocurrencies himself or just make it less of a problem.

This is compounded by the fact that, while most Americans still don’t interact with or care much about cryptocurrencies, there have been a series of missteps by regulators that have garnered something almost akin to sympathy for the industry. The most serious problem is the SEC’s handling of the approval of bitcoin ETFs, which has been called “arbitrary and capricious” by an appeals court.

But there is a growing sense that this same dismissive and biased view underlies all of the Biden administration’s crypto efforts. Americans want cryptocurrencies to be safe and well regulated, they want consumer protection; they don’t want arcane debates about whether an asset is a security.

Furthermore, it is conceivable that a strong reaction to the industry’s catastrophic failures in 2022 was politically advantageous, but now that prices are rising again, a heavy-handed approach seems both a waste of government resources and potentially excessive. This is not to mention the fact that provoking the cryptocurrency industry always elicits a negative reaction from industry insiders.

Again, all of this is mere speculation: There is no direct evidence that Biden is reversing course. It is significant that a major piece of cryptocurrency legislation has reached this point, that the approval of ETH ETFs is back in play, and that Trump has won over “single-issue” cryptocurrency voters. Think of it as a vibrational analysis, a theory that can never be proven but may strengthen if more positive advances like this occur.

Ultimately, politics, like cryptocurrencies, is all about vibes.

Fuente