By Ted Serafini
July 30, 2021 at 5:00 am ET
Almost daily, Democratic policymakers are publicly voicing concerns about the digital asset industry, and in particular the cryptocurrency sector — indicating that the sector needs to show its value to the economy and poses the potential for financial risk, money laundering and tax evasion.
These criticisms highlight the deep skepticism the crypto industry faces from Democrats in Congress and make it clear that lawmakers are not buying into the notion that crypto is the future of finance. With the ghosts of the 2008 crisis ever present, Members on the left are especially reticent to embrace financial innovation that — whether fairly or not — is viewed as being largely unregulated.
That reality is already well-known by regulators at the Securities and Exchange Commission, Commodity Futures Trading Commission and elsewhere. Optimism among the digital assets industry that new SEC Chair Gary Gensler would be more open to crypto and other blockchain-based innovations because of his time teaching the topic at MIT has given way to the reality that political dynamics will be an obstacle to doing anything in this area (legislative or regulatory), particularly anything that could be interpreted as increasing access to cryptocurrency.
Until these dynamics change, regulatory developments on crypto will be likely limited to enforcement and consumer protection initiatives. Regulators will instead focus on implementing progressive policies with a hyper-focus on climate change, diversity and inclusion and other environment/social governance topics, enforcement and the rollback of Trump-era rules.
The crypto industry has made strides over the past few years in building its presence and credibility with policymakers, but there is clearly still a way to go with Democrats in particular. Achieving rational policy outcomes will depend in part on how industry leaders approach skeptical policymakers. With that in mind, there are a few steps that the industry can take to try to change the emerging narrative on crypto with Democrats:
The skeptics may never embrace the digital asset industry, but they should come to appreciate, sooner rather than later, that this innovative market has more to offer than speculation and price volatility. That, in and of itself, would be a victory and help smooth the path for rational policymaking in this space.
Ted Serafini is a senior director at Patomak Global Partners, where he specializes in advising clients on emerging financial regulatory issues.
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