Pro-crypto bill gets cold reception in Senate from Democrats who say digital currency benefits ‘money launderers and criminal syndicates’

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By Chris Matthews

Crypto market structure talks ‘not moving in a positive direction’, analyst says

The crypto industry is on a winning streak in Washington, but that might not last long.

After a surprise victory in a major court case against the Securities and Exchange Commission earlier this month that could significantly reduce the SEC’s power to regulate cryptocurrencies, the House Financial Services Committee is expected to pass two broadly industry-backed bills this week that would bring regulatory clarity to the space.

Read more: A ‘wild result’: How the Ripple decision muddies the battle between the SEC and the crypto industry

But despite optimism that the SEC’s partial loss in its enforcement case against Ripple would generate broad bipartisan support for the new crypto rules, there is little evidence so far of that happening.

Democrats and Republicans have “worked together” to revise a market structure bill currently being debated, “but those conversations are not moving in a positive direction,” Isaac Boltansky, director of policy research at BTIG, wrote in a Sunday note to clients, adding that he is “bearish” on the crypto market structure legislation that will become law this year.

Republicans in the House seem determined to pass new legislation — backed by Financial Services Committee Chairman Patrick McHenry of North Carolina and Agriculture Committee Chairman Glenn Thompson of Pennsylvania — that would expand the Commodity Futures Trading Commission’s role in overseeing digital assets at the expense of the SEC, a key industry demand.

There are a few Democrats in the House who seem keen to back the McHenry-Thompson bill, but little evidence that the party leadership supports the effort and many suggest it will struggle to garner support from the Democratic Senate.

Sen. Sherrod Brown of Ohio, the Democratic head of the Senate Banking Committee, told Politico on Monday that his top crypto priority is to do “whatever it takes to crack down on money launderers and criminal syndicates that use crypto.”

The House bill would have to go through Brown’s committee before it has a chance to get a vote in the full Senate.

Even crypto proponents in the Senate, like Wyoming Republican Cynthia Lummis, seem eager to address fears that crypto would aid criminal activity before passing legislation intended to clarify regulations.

“If we can get that part sorted early on, before the regulatory framework is passed, then we’ve taken that concern off the table,” Lummis told Politico. “And we can actually talk about digital assets in terms of regulation.”

Last week, Lummis joined with Republican Senator from South Dakota Mike Rounds and Democratic Senators Elizabeth Warren from Massachusetts and Senator Mark Warner from Virginia to add an amendment to the annual Defense Authorization Bill to prevent the use of crypto assets in illicit financial transactions.

Separate legislation targeting illicit cryptography, submitted last week by Rounds and Republican Senator Mitt Romney of Utah, also drew widespread criticism from industry groups last week.

“We can understand wanting to prosecute people who facilitate money laundering and sanction evasion by providing name-only decentralized services,” Jerry Brito, executive director of crypto think tank Coin Center, wrote last week. “However, to generally ban the publication of open-source code for decentralized cryptographic protocols…is to cede the field of innovation to the rest of the world.”

-Chris Matthews

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(END) Dow Jones Newswire

07-24-23 1348ET

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