The bad news continued for the blockchain industry last week with two consequential announcements.
First, Senator Debbie Stabenow (D, MI), Chairwoman of the Senate Agriculture Committee, announced out-of-the-blue that she will not run for re-election in 2024 and therefore leave the U.S. Senate at the end of her term on January 3, 2025.
Second, the offices of the Federal Reserve, Comptroller of the Currency and the Federal Deposit Insurance Corporation banded together on January 3 for a clear warning (PDF) that if you’re a bank – therefore regulated by the Federal government – crypto is a no-go. Happy New Year!
For crypto proponents, the loss of Stabenow diminishes the likelihood that the Digital Commodity Consumer Protection Act (DCCPA) – and perhaps any blockchain bill from Senate Ag – will ever see a vote on the Senate floor in 2023. DCCPA which she co-sponsored with Senate Ag Committee Ranking Member and Senator John Boozman (R, AR) remains well-poisoned by FTX CEO Sam Bankman-Fried’s (SBF) involvement.
Sen. Stabenow, 72, prioritized her remaining two years in Congress in a statement saying that “leading the passage of the next five-year Farm Bill which determines our nation’s food and agriculture policies” is critical. Going forward, blockchain is the last thing she wants to mention to voters who are inundated with the latest SBF drama as they consider a Democratic or Republican candidate for Stabenow’s seat in the months ahead.
DCCPA aside, losing a top Democrat who has supported the idea of blockchain’s potential will be a blow to the bipartisan forces currently trying to pass pro-crypto legislation in Congress. The loss of Stabenow represents one less Democratic vote to balance out votes such as Senate Banking Chair and Senator Sherrod Brown (D, OH) and Senator Elizabeth Warren (D, MA), who is a member of the Senate Banking and Finance Committees.
And even though she will be in Congress for the next 24 months, it may be difficult for Sen. Stabenow to push anything through that isn’t, say, the very substantial Farm Bill, given her outgoing status. Former Senator Patrick Toomey (R, PA) is a good example of a Senator that pushed for his Stablecoin Trust Act, but his term ended before any meaningful advancement of the bill. Arguably, Toomey’s stablecoin bill was before its time, but his “lame duck” status did not appear to assist his efforts.
With Stabenow on the way out, how her former Senate counsel and current CFTC Chair Rostin Behnam maps out the future will be interesting to watch. Senator Cory Booker (D, NJ), member of Senate Ag and co-sponsor of DCCPA, would appear to be an increasingly important partner on the Democratic side of the aisle assuming his re-election in 2024.
“It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system,” read the statement. Put another way, let’s not mix the banking system with crypto.
Given the top-of-the-year timing of the announcement, this effort from the Federal Reserve, OCC and FDIC was likely ignited by the FTX debacle which started in early November. It would not be a stretch to imagine that Treasury Secretary Janet Yellen or the Biden Administration asked for delivery of this guidance.
And it would not have been difficult for any of the federal entities to create their January 3 statement given their many past statements:
- Michael Hsu of the OCC‘s keynote pulled no punches (PDF) at the DC Blockchain Summit in May: “The resilience of the traditional banking system to the recent events in crypto is not an accident. Rather, it is due, at least in part, to federal bank regulators’ continued and intentional emphasis on safety and soundness and consumer protection.”
- At a Brookings event in October, FDIC Chair Martin Gruenberg saw no good with blockchain other than payment stablecoins: “You need only read the news to know that these risks are very real. After the bankruptcies of crypto–asset platforms earlier this year, there have been numerous stories of consumers who have been unable to access their funds or savings.”
- Or even Federal Reserve Vice Chair Michael Barr‘s speech (pre-FTX) during October’s DC Blockchain week which was mildly hopeful and yet diluted with skepticism: “The recent volatility in crypto markets has demonstrated the extent of centralization and interconnectedness among crypto-asset companies, which contributes to amplified stress.” Centralization and crypto – an increasingly unhappy partnership and ironic given the high ground of stability which a centralized government is claiming.
Seeing the bad news pile-up, Circle CEO Jeremy Allaire, whose company is responsible for the USDC stablecoin, felt compelled to deliver a missive of his own to the federal monoliths.
Titled “The Looming Battle over Public Chains in Public Policy,” Allaire asked in a Medium post, “Is this a ‘regulatory last stand’ for the open internet’s collision with the financial system?” Allaire then explains why he hopes not.
Regulation feels imminent – but not the kind of regulation that inspires innovation.
With the lingering effects of the crypto drama whipping up distrust and a Republican party struggling to take control of the House as exemplified by the Speaker of the House election, it would seem a tilt toward more draconian regulation that keeps the US Dollar unplugged from truly decentralized markets could be the outcome.
The lone potential bright spot for the blockchain industry: Rep. Patrick McHenry (R, NC) and Rep. Maxine Waters (D, CA) stablecoin efforts on the House Financial Services Committee could be the seeds of tighter integration of crypto and the world’s largest financial system. Divided government stands in the way as prospects for passage in the Senate and President Biden’s signature are unclear at best.