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Rep. Nancy Pelosi (D-CA) speaks with reporters as she arrives at the U.S. Capitol, May 6, 2024, in Washington.
Speaker Emerita Nancy Pelosi (D-CA) is considering voting for a Republican-backed crypto bill when it comes up for a vote this week in the House, according to sources familiar with her thinking.
The bill, known as the Financial Innovation and Technology for the 21st Century Act (FIT 21), was put together by Republicans on the House Financial Services Committee, and represents the most comprehensive effort to regulate crypto to date, primarily along industry-friendly lines. The bill could also open up loopholes for other financial instruments outside of crypto, experts tell the Prospect. A Rules Committee meeting on FIT 21 takes place later today, with a floor vote likely as soon as Wednesday.
Pelosi is no longer in the Democratic leadership, but her opinions still carry weight among many House Democrats. She also remains one of the most prodigious fundraisers in the Democratic Party, at a time when the crypto industry has delivered large sums of campaign contributions over the past two electoral cycles. House Republicans’ decision to give FIT 21 a vote allows those crypto PACs to see definitively where members of Congress stand on the issue before November, and target spending accordingly.
If Pelosi supports the bill, she would be breaking with the ranking Democrat on the Financial Services Committee, Rep. Maxine Waters (D-CA), who opposes FIT 21, along with Rep. Brad Sherman (D-CA), another senior member in Pelosi’s California delegation. In a communication to House Democrats, leadership did not say it would whip the bill, only that Waters and other senior members “strongly” opposed it.
In 2022, Pelosi managed the House Majority PAC, the super PAC supporting House Democrats, when it received $6 million from disgraced crypto billionaire Sam Bankman-Fried to support a candidate in an open-seat Democratic primary in Oregon. (That candidate, Carrick Flynn, lost the primary.) Pelosi personally received $2,900 from Nishad Singh, director of engineering for FTX, Bankman-Fried’s bankrupt crypto exchange.
Coinbase, one of the major currency exchange platforms, no longer has a physical office but spent the first eight years of its life as a company based in San Francisco, in Pelosi’s district. Coinbase CEO Brian Armstrong has lobbied for more lenient crypto regulation in Washington before, even taking a selfie with Pelosi in 2021. The company’s name is on a coalition letter endorsing FIT 21 that was sent to House leaders last week.
In response to a question from the Prospect, Pelosi spokesperson Aaron Bennett said that he did not yet have an answer on her position on the bill.
FIT 21 ADDRESSES THE THRESHOLD QUESTION in crypto regulation: What counts as a commodity, and is therefore regulated by the light-touch Commodity Futures Trading Commission (CFTC), and what counts as a security, with oversight going to the more stringent Securities and Exchange Commission (SEC).
The bill would define all digital assets on a “decentralized” blockchain as a commodity, and would also give the CFTC regulatory authority over cash or spot markets for crypto. This definition means that most digital currencies and coins would get put under the CFTC’s regulatory regime, and even for those crypto assets defined as securities, there would be several exceptions to SEC regulation. Stablecoins, which are pegged to the dollar and are used to facilitate crypto trading, would have only limited federal regulatory oversight.
In other words, the bill delivers what the industry has sought for some time: a regulatory regime mostly dominated by the CFTC, which has been far more accommodating of the industry. The coalition letter says that the legislation would help “accelerate the growth of blockchain technology and digital assets, fostering financial inclusion and protecting national security.”
Waters and other Democrats held a member and staff briefing about FIT 21 on Monday, strongly rejecting the measure. Financial reform groups have been assailing it for months. “This is a bill that, instead of creating regulatory standards for the crypto industry, tries to rewrite financial regulations to benefit crypto,” says Mark Hays, senior policy analyst on fintech with Americans for Financial Reform.
The bill delivers what the industry has sought for some time: a regulatory regime mostly dominated by the CFTC, which has been far more accommodating of the industry.
In particular, advocates take issue with Title II of the bill, which would alter the long-established “Howey test” for determining what counts as a security. The Howey test says that an “investment of money in a common enterprise, with a reasonable expectation of profits to be derived from the efforts of others” is a security. But FIT 21 would change that standard, which has been in place since the Securities Exchange Act of 1934, for digital assets. That would keep them out of SEC oversight.
Hays says that this “creates a road map for other Wall Street players to use the same rubric,” meaning that other investment contracts could be written outside of crypto whose assets would be exempt from the securities laws.
Pelosi may not have 90-year-old financial regulatory statutes in mind when assessing the bill, but the realities of 21st-century elections. As the Prospect has reported, the conviction of Bankman-Fried for criminal fraud has not slowed down the crypto money train in Democratic primaries. As of April, the industry had raised $80 million for the 2024 elections. Numerous Democratic members have recently been elected—from Sen. John Fetterman (D-PA) to Rep. Ritchie Torres (D-NY), himself a sponsor of FIT 21—with crypto industry support.
The effort has paid off for crypto companies. Thirty-two Democrats in the House and Senate joined Republicans last week to vote to roll back SEC guidance on crypto accounting, a resolution President Biden has vowed to veto. Pelosi was not among the 21 House Democrats who voted for the resolution, but on the Senate side, Majority Leader Chuck Schumer (D-NY) was among the yes votes.
Schumer also tried unsuccessfully to work a deal in the FAA reauthorization bill to include legislation favored by the industry regulating stablecoins. There was speculation that Schumer was trying to protect Democratic Sens. Sherrod Brown (D-OH) and Jon Tester (D-MT), who have been threatened with campaign spending from the crypto industry against their re-elections.
In his Senate race this year, Rep. Adam Schiff (D-CA), a protégé of Pelosi’s, added pro-crypto messaging to his campaign website, saying that he would make sure “the United States remains the global leader in these important new technologies.” As a result, he received an “A” rating from an outside group called Stand With Crypto, and his primary Democratic opponent, Rep. Katie Porter (D-CA), was hit with $10 million in negative ads funded by the industry.
Several House Democrats have already lined up to support FIT 21, including Rep. Ro Khanna (D-CA) and co-sponsors Reps. Torres, Wiley Nickel (D-NC), and Henry Cuellar (D-TX), who was recently indicted on bribery charges. House Democratic support could determine whether the Senate feels the need to take up the bill, though it’s currently seen as unlikely. Pelosi’s decision would determine to a significant degree where those numbers would end up.
The potential financial windfall for supporting crypto, and the onslaught for opposing it, is driving Democratic decision-making, Hays says. “This is not about supporting crypto, this is about trying to navigate the threat of promises from super PACs.”
