3 Reasons Why Crypto Is Suddenly A Top Policy Issue

Cryptoassets continue to have a positive year as 2024 nears the midway point. With funds continuing to flow into bitcoin ETFs, ether ETF approval following in May, and ongoing institutional adoption, the business case of crypto looks set to continue to improve. In addition to the positive sentiment and trends driven by the private market, however, there has been a sudden pivot to crypto in policy circles as well. Perhaps pushed forward by the positive news of the FTX bankruptcy (although that should be taken in context), or by the realization that the SEC under Chair Gensler will not stop its seemingly endless crusade to regulate crypto by enforcement, U.S. policymakers have responded in a major way.

The passing of FIT21 in the House of Representatives, moving forward to the Senate, is the latest sign that crypto is increasingly a political issue, a non-partisan issue, and one that matters to voters, investors, and policymakers alike. Additionally the fact that the House passed a bill that would ban the Federal Reserve from ever issuing a CBDC indicates that policy over-reach is slowly being recognized and addressed.

Another high profile, and surprisingly bipartisan, action taken related to cryptoassets in the U.S. was the repudiation of SAB 121, an SEC issued staff accounting bulletin that would have it more complicated and costly for financial institutions to hold cryptoassets on behalf of clients. Despite pushback from the industry, and even SEC commissioner Hester Peirce, it took time for this matter to reach the level of Congressional attention. The fact that, even in an election year that looks set to be one of the most contentious in modern history, Congress has acted quickly and in a bipartisan manner highlights the following; crypto is a major policy issue for voters and investors.

Let’s take a look at a few of the reasons why that is, and what crypto investors should keep in mind going forward.

Crypto Will Change The Financial System

The most obvious reason why crypto has quickly become a hot topic in policy circles is that as TradFi moves into the space the realization is growing that crypto will change and influence the U.S. (and global) financial system going forward. No matter what the price of bitcoin or any other specific token does on a given day, the fact remains that tokenized transactions and tokenized financial instruments look like the path forward for investors and institutions alike. One small example of this is the announcement that the campaign of former President Donald Trump (seeking re-election following a 2020 defeat) is the first political campaign of major U.S. political party to accept crypto donations.

Larger scale changes can be seen working through different aspects of the banking and payments infrastructure. PayPal
PayPal
issuing a native stablecoin, following years of slowly integrating crypto options into its widespread payment network, is just one payment processor accelerating crypto adoption. After pulling back during the aftermath of FTX, both Visa
Visa
and Mastercard
Mastercard
have reinvigorated efforts around both enterprise blockchain and crypto payments. Last but not least Stripe has reintroduced stablecoin payments via a partnership with Circle.

Crypto payments and here to stay, are growing, and are increasingly accessible to even novice crypto enthusiasts.

Crypto Drives Innovation

One of the most important critiques of cryptoassets and blockchain in general is that the investment dollars and time deployed into these projects could be better allocated elsewhere. Setting aside the exceedingly low probability that policymakers would be adept at picking winners and choosers – it has never worked well in the past – this position is also incorrect. In addition to the changes and improvements that tokenized assets and payments are already delivering to the financial space, the continued development of, and investment in, cryptoassets is manifesting benefits in other economic areas.

Renewable energy is one such example, and even though the debate around fossil fuel alternatives has become politically charged, cryptoassets remain an important part of these conversations. By acting as swing producers/consumers of electricity, crypto miners and other operators can help mitigate surges and deficits caused by extreme weather. In addition, bitcoin miners – as reported by the Bitcoin Mining Council – are already using approximately 60% of total energy consumed from non-fossil fuel resources. With policies such as the Inflation Reduction Act targeting increases in non-fossil fuel consumption, policymakers should be embracing the already (in many cases) green crypto sector.

Crypto Improves Privacy

Privacy has been a subject of policy debate, Congressional hearings, and multiple other forms of oversight and critique since social media platforms obtained such an outsized role in how individuals and firms interact, learn, and engage with each other. This initially narrow focus on social media has expanded to include virtually every aspect of digital commerce and life in the United States.

Recently fears have grown that as several U.S. regulators, including the SEC and OCC have stymied crypto native innovation that the potential of a central bank digital currency will continue to move toward reality. With well grounded fears of total, instantaneous and permanent insight and access to all transactions touching the U.S. CBDC network, the pushback against such a possibility has swelled. Some, if not a sizeable percentage, of the recent pushback and policy progress is in response to the inaction of other aspects of the U.S. regulatory apparatus.

Crypto is here to stay, and U.S. policymakers are finally starting to take note.