And then there were four…
The American presidential race has picked up speed. Within the last several days, three democratic candidates have suspended their campaigns, and with so many primary races happening today, “Super Tuesday”, it will undoubtedly be more clear by the end of the week who will be running against the incumbent President, Donald Trump: as of the morning of March 3rd, there were still four candidates in the democratic presidential race: Joe Biden, Bernie Sanders, Elizabeth Warren, and Mike Bloomberg.
While the political conversation in the United States has centered mostly around social welfare issues, there has been some talk over the past several weeks about how each of the candidates could potentially affect the cryptocurrency and fintech industries.
The United States has long been lagging when it comes to creating proper legislation for cryptocurrency. Even after the dawn of Libra, which seemed to awaken the attention of the federal government in a serious way for the first time, the United States remains a patchwork of regulatory jurisdictions.
At a federal level, the slow pace of legislative action in the United States has caused various government bodies to pick and choose from existing laws to cover the crypto industry–with mixed results.
Additionally, there has been some hostility directed toward crypto from the current commander-in-chief himself: last year, prompted by the launch of Libra, President Donald Trump tweeted that “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air,” adding that “Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity.”
…and International. We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable. It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!
— Donald J. Trump (@realDonaldTrump) July 12, 2019
In other words, there’s a lot of room for improvement when it comes to the regulatory situation surrounding the cryptocurrency industry in the United States; then again, it’s also possible that the situation could worsen.
What have each of the remaining US presidential candidates said or done that may be relevant to the way their administrations will treat cryptocurrency? And what will the future look like if things stay the way they are right now?
Bernie Sanders: the darling of the tech industry? Depends who you ask
While most of the candidates have not spoken about cryptocurrency directly, we can infer from some of their actions where they might stand on the cryptocurrency industry in the future.
For example, Bernie Sanders also hasn’t spoken directly about cryptocurrency during his campaign.
With his leftist rhetoric–which is considered to be extreme by some members of the American electorate–Sanders can be a rather polarizing figure. Though he hasn’t spoken directly on crypto or tech more generally, the New York Times recently reported that he seems to be feared by the leaders of Silicon Valley.
However, Sanders does seem to be the darling of the tech industry more generally when donations from tech company employees are taken into account–the Guardian reported on March 2nd that Sanders had gotten a collective $726,702 in donations from 5,735 employees of some of the States’ largest tech companies, including Facebook, Google, Amazon, Apple, Uber, Tesla and SpaceX, Oracle, and Microsoft.
Additionally, there is some consensus in the crypto community that a Sanders presidency could be great for Bitcoin and other cryptocurrencies–however, this seems to stem out of the belief that some of Sanders’ proposed policies could devalue the United States dollar.
Indeed, when Sanders ran in 2016, Patrick Dugan from the Omni Foundation told Cointelegraph that “Bernie’s plans, more directly than others, will require the monetization of more US debt in order to monetize the Quantitative Easing (QE) for the people in the form of expensive subsidies for healthcare and education.”
“So as the centrist, Wall St. friendly QE would cause that new money to flow into Wall St. assets, the Main St. QE would flow into business revenue as people necessarily spend it, and those who don’t need to spend it, will be able to try and protect the value by buying physical gold, hoarding cash (expecting negative rates to follow), or if they want the full range of financial services that banking provided with the sovereignty of fungible hard money, they will get their money on an open blockchain such as Bitcoin.”
While former Vice President Joe Biden also hasn’t said anything directly about cryptocurrency, TrustNodes</em floated the idea of Biden as the “Bitcoin Candidate” in an article last July.
Additionally, a political action committee (PAC) that was campaigning for Biden to run for the presidency in 2016 began accepting donations in BTC. At the time, Joseph Schweitzer, the PAC’s director, said in a statement that “this is in keeping with Vice President Biden’s strong support of technology and innovation throughout his career.”
And Biden has been fairly progressive when it comes to technological innovation in the past, particularly when it comes to issues somewhat analogous to the cryptocurrency sector.
For example, Biden commented in 2011 on the internet itself, saying that he views the internet as a neutral force that the world must collaborate on in order to upkeep–seemingly implying that regulation may be necessary.
“The Internet itself is not inherently a force for democracy or oppression, for war or for peace. Like any public square or any platform for commerce, the Internet is neutral,” he said. “But what we do there isn’t neutral. It’s up to us to decide whether and how we will protect it against the dangers that can occur in cyberspace while maintaining the conditions that give rise to its many benefits.“
“[…] So the United States stands behind the current approach which harnesses the best of governments and private sector and civil society to manage the technical evolution of the Internet in real-time,” he said. “This public-private collaboration has kept the Internet up and running all over the world.”
While he doesn’t mention cryptocurrency here, if we replace the word “Internet” with the word “Bitcoin” or “cryptocurrency”, it may be possible to infer that Biden could view something like the cryptocurrency industry or the Bitcoin network as fairly neutral, but in need of regulatory collaboration to prevent crime.
While the next 24 hours may offer a plot twist, it seems that the trajectory of Elizabeth Warren’s presidential campaign may be losing steam; as of 10.00 EEST on Tuesday morning, the Senator from Massachusettes hadn’t won a single state, and may eventually drop out of the race.
That being said, Elizabeth Warren has previously demonstrated a degree of healthy skepticism towards crypto in the past. Though she has been somewhat critical of crypto, she also seems to be somewhat eager to understand cryptocurrencies, and to regulate them in a way that protects consumers without damaging their functionality.
Quoted by Forbes, Warren said in 2018 that cryptocurrency was easy to steal and that a lot of small investors had been scammed by ICOs. (She wasn’t exactly wrong.)
“The challenge is how to nurture productive aspects of crypto with protecting consumers,” she said.
Previously, in 2017, Elizabeth Warren called for regulation on crypto in remarks she made to Yahoo! Finance.
“I’m worried about consumers getting hurt,” she said. The cryptocurrency has a history of extreme volatility, but has been on a tear of late, approaching $10,000 per bitcoin.
“It’s American families that end up paying the price when any regulator says we’re more interested in Wall Street,” said Warren. “What I think is that we need a Fed that is engaged in watching where risk builds up in the system. That’s the Fed’s job — that’s not the job of American families.”
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Like Elizabeth Warren, the billionaire and former mayor of New York also hadn’t won any states at press time; he has also spoken openly about his views on cryptocurrencies.
Indeed, in a financial reform plan published last month, Bloomberg advocated for “providing a clear regulatory framework for cryptocurrencies.”
Specifically, the proposal said that “cryptocurrencies have become an asset class worth hundreds of billions of dollars, yet regulatory oversight remains fragmented and undeveloped. For all the promise of the blockchain, bitcoin and initial coin offerings, there’s also plenty of hype, fraud and criminal activity.”
Bloomberg also spoke briefly on his views about Bitcoin in 2017 on Bloomberg Markets and Finance, when he said that small businesses would not need to have a Bitcoin strategy “in our lifetime.”
The state of the States
Of course, it’s also possible–and perhaps even likely–that the next president of the United States (and his or her administration) may not take any kind of serious action toward regulating the cryptocurrency industry. This could mean that the crypto industry will continue to operate in the country’s current regulatory conditions.
What does this mean on a practical level? While some states have made the effort to create regulations and licensing procedures for crypto platforms and some of the more niche aspects of the fintech industry, but many (or even most) rely on existing laws that have been stretched to cover crypto.
This is also true of the federal government. The most popular example of this is the application of the Howey Test, which is used to determine whether or not an asset can be deemed as a security, to bring legal action against a number of initial coin offerings (ICOs) and some other kinds of token sales.
As such, a number of entities that have been negatively affected by the application of the Howey Test have claimed that the United States government–in particular, that the Securities and Exchange Commission–is guilty of “regulation by enforcement.”
In other words, that the SEC failed to make regulations clear at a stage when the affected parties could have used more guidance to steer clear of sticky legal territory, and that it is instead seeking to clarify its regulations by enforcing them in unprecedented ways.
Indeed, the “regulation by enforcement” argument was recently used against the SEC in two high-profile cases brought against Canada-based encrypted messaging service Kik and Berlin-based encrypted messaging service Telegram, both of which held token sales that broke fundraising records at their respective closing times.
Kik’s counter-filing against the SEC, however, said that the Commission had “engaged in improper ‘regulation by enforcement’ in this nascent area of the law, failed to provide clear guidance and fair notice of its views as to what conduct constitutes a violation of the federal securities laws, and has now adopted an ad hoc legal position that is contrary to judicial precedent and the publicly expressed views of its own high-ranking officials.”
However, in its cases against both Kik and Telegram, the SEC has fired back with claims that the “regulation by enforcement” argument is not valid, even though Telegram alleges that it had “voluntarily engaged” with the SEC seeking guidance to avoid breaking federal securities laws and that the SEC still “failed to provide [guidance] prior to bringing this enforcement action.”
Lawmakers and law enforcement are slowly learning about cryptocurrencies
However, Phil Liu, Chief Legal Officer and Co-Founder of crypto investment platform Arca, pointed out that while there have been a few bumps in the road, and perhaps a general sense of inaction from the government’s part, there have been some positive changes in the way that federal and state governments are interacting with the cryptocurrency industry.
Mr. Liu said that much of this shift stems from the fact that regulators and law-enforcement bodies have become much more familiar with the way that cryptocurrency works. Indeed, Mr. Liu said that the government “understand[s] the risks and technology more.”
As such, the government’s crypto-related law enforcement efforts may have improved. For example, “they know now how to trace transactions once a wallet has been identified to a person. They know the usual scammer techniques and how they target investors so they are able to go after them quicker.”
Additionally, the government is “coordinating responses and actions with foreign counterparts better.”
Mr. Liu sees a shift in the way that regulators are interacting with the industry in another way: “[the government is] also working with innovators to allow innovation to happen within the law, and [has] demonstrated an openness to hearing about how the current laws prevent or hinder innovation.”
There are several examples of this at the federal level–perhaps the most famous one is the series of hearings that both the United States Senate and the House of Congress had regarding Facebook’s Libra project, which was launched in June of 2019.
Is the US government opening its ears to the crypto industry?
While the hearings did seem to result in several pieces of proposed reactionary legislation, including the “Keep Big Tech Out Of Finance Act” and the “Stablecoins Are Securities Act”, the hearings also helped to open the discussion around the role of cryptocurrencies and cryptocurrency platforms in the United States government, perhaps for the first time.
The hearings may have also contributed to later pieces of proposed legislation, including the “Crypto-Currency Act of 2020”, which seeks to define and regulate cryptocurrency more generally in a more progressive and nuanced way.
Additionally, while it has been argued that the SEC may have regulated by enforcement when it comes to cryptocurrency token sales, the Commission has heavily communicated with firms that have made an effort to launch Bitcoin-based exchange-traded funds, or ETFs.
Indeed, while the many delays that each ETF application has faced were certainly frustrating, it can be argued that the delays were evidential of the fact that the SEC was working internally to try and see if there could be a way to get an ETF on the books.
Still, the fact that none of these applications has received approval has led to some dissenting opinions, even within the Commission itself.
Indeed, Commissioner Hester Peirce, also known as ‘Crypto Mom’, said last week after the SEC’s rejection of the Wilshire Phoenix Bitcoin ETF application that the SEC’s “ever-shifting standards” when it comes to BTC-related products and services “impedes innovation in this country and threatens to drive entrepreneurs, and the opportunities they create, to other jurisdictions.”
Can the US’s legislative behemoth move quickly enough for crypto?
However, it can be argued that in order for truly effective regulation in the United States, there may need to be some changes at a structural level.
Speaking about the role of regulation in the US economy in an interview with Finance Magnates last year, Miko Matsumura, General Partner of Gumi Cryptos, said that “Regulators are always trying to do their best. [But] for example, if you take a regulatory body like the US SEC, they’re about 1% of the size of Goldman Sachs–and they have to regulate Goldman Sachs. That’s a big job.”
In fact, “it’s too much,” he said. “The people I’ve spoken to at the SEC are incredibly bright and really, really good at their jobs, but there just aren’t enough of them. There are too few people working on it, and it’s too hard–and obviously, so-called innovators–their full-time job is to skirt around the edges and sort of chip away.”
In other words, the SEC and other regulatory bodies may already be so saddled with regulating the “mainstream” financial industry that cryptocurrency could continue to fall to the wayside, at least until it becomes “mainstream” enough to become a real “concern” for the SEC and other regulatory and law-enforcement bodies.
But this presents a sort of Catch-22: crypto mya never truly reach “mainstream” status in the US without regulatory support from these entities; if it does, it may be through the support of foreign entities, which the US government is unlikely to be too enthusiastic about.
Still, it seems as though the regulatory processes in the United States are far outpaced by those in smaller, more agile nations: jurisdictions like Switzerland, Japan, Malta, Gibraltar, and other places in the EU and Asia seem to be leading the way forward. The US–whoever its president will be–may have no choice but to eventually follow.