House Financial Services Committee Weighs Crypto Legislation and Outrage

by Arthur · April 19, 2023

SEC Chairman Gary Gensler mocks putting a gun to his head in response to a ‘Blazing Saddles’ reference by Rep. Emanuel Cleaver Tom Williams – Getty Images

Proof of State is the Wednesday edition of Fortune Crypto where Leo Schwartz delivers insider insights on politics and regulation.

Before FTX’s collapse in November, Washington, DC, was full of opportunity. There was a draft stablecoin bill from the House Financial Services Bill and three promising crypto market structure bills from two key Senate committees and a House committee, all with bipartisan support, with hopes that one might even pass before the end of the session.

Sam Bankman-Fried’s grisly fall shattered all those ambitions. Worse, the debacle brought out the worst in DC, creating a blame game as lawmakers tried to distance themselves from the amazing donor and retreat to their partisan corners to lick their wounds.

Crypto-skeptic Democrats like Sens. Sherrod Brown (D-Ohio) and Elizabeth Warren (D.-Mass.), who had previously supported a more agnostic view, began to take tough stances against the fraud-ridden sector. Republicans, who had already viewed US Securities and Exchange Commission Chairman Gary Gensler with suspicion, began to increase their resentment of the regulator, particularly when he took enforcement actions against Kim Kardashian and long-defunct projects like Terraform, while still refusing to provide any clarity in the agency’s legal approach to cryptocurrencies.

Congress moves slowly, and it was to be expected that the first crypto-related hearings this session would be more of a throat-clearing exercise, while any substantive legislation would take months to restart. Even as March’s ATM crisis made it even more unlikely that crypto regulation would become a priority on the Hill, lawmakers and aides expressed confidence that much-needed reform would come.

This week marks the first true test of whether Congress will take a real shot at the legislation. With a crypto-skeptic heading the Senate Banking and House and Senate Agriculture Committees consumed by the once-every-five-year farm bill, the legislation is likely to come from the House Financial Services Committee, a Republican-led body that established a digital asset-focused subcommittee this session, signaling its intent about plowing forward.

The most vocal critics of Gensler have come from HFS from both sides of the aisle, including Chairman Patrick McHenry (RN.C.), Majority Whip Tom Emmer (R-Minn.), and second-term Congressman Ritchie Torres (DN.Y. ). When the committee hosted its much-anticipated SEC oversight hearing yesterday, with Gary Gensler as the only witness, the result was – as expected – a circus, with proceedings stretching over 5 hours (including a break) and even including a lengthy reference to the Mel Brooks classic Blazing Saddles.

It was hard not to feel sorry for both sides. Why should Gensler not settle the question, once and for all, whether he considered Ether to be a security? Why wouldn’t the legislators understand that his job is not to keep companies in the US if he thinks they are not in compliance with US law?

The committee has a chance to redeem itself today, when it hosts a hearing on the stablecoin legislation, just days after finally publishing its bipartisan bill, a thoughtful effort that has drawn praise from the crypto industry and both sides of the the aisle. Unlike yesterday’s performance, today’s hearing has invited experts to provide clarity, not serve as a lightning rod, including New York Department of Financial Services Superintendent Adrienne Harris, Circle Chief Strategy Officer Dante Disparte and former Paxos chief risk officer Austin Campbell. Let’s see if Congress can get back on track.

Leo Schwartz
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@leomschwartz