Francis Chung/E&E News/POLITICO via AP Images
Sen. Kirsten Gillibrand (D-NY) departs a vote at the U.S. Capitol, June 13, 2022.
Not quite a full week before “Black Monday,” when the crypto market saw its total market cap drop over $100 billion in one day, Sens. Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY) unveiled their bipartisan cryptocurrency bill. The Responsible Financial Innovation Act, co-authored by the junior senator from New York and the junior senator and Bitcoin HODLer from Wyoming, has been hotly anticipated by crypto industry groups, which have been lobbying Washington relentlessly for months to get a favorable bill on the table.
In the eyes of many, the timing could have been better. The broader cryptocurrency sector has now sustained more than $2 trillion in losses since its November 2021 peak. That’s separate from growing instances of outright theft, which the Federal Trade Commission recently tabulated as responsible for $329 million in retail crypto investor losses in the first quarter of this year. The bill’s announcement was soon followed by the revelation that crypto lender Celsius was suspending transactions, withdrawals, and transfers amid market volatility, while Binance, the world’s largest crypto exchange, paused withdrawals as the run on crypto accelerated.
The Lummis-Gillibrand bill presents a broad framework for regulating cryptocurrency, but does so with a light-touch approach that had industry groups largely cheering its construction and anticipating its release. Earlier versions of a bill put forward by Lummis alone looked primed to give the industry even its wildest desires; the bipartisan version, owing in part to Gillibrand’s input, looks more restrained.
But it is the industry’s courting of Gillibrand that has been particularly notable. Facing substantial regulatory scrutiny from progressives in New York, including a bill that just passed the state legislature enacting a partial moratorium on crypto mining, crypto lobbyists locked onto Gillibrand as a potential ally. Per Bloomberg, “Industry executives sought to woo Gillibrand during a recent trip to San Francisco as she shuttled between a meeting with them at the St. Regis Hotel and breakfast with venture capitalists.” Just a few weeks later, digital asset lobbyist and executive director of the Blockchain Association Kristin Smith threw a Manhattan fundraiser on Gillibrand’s behalf.
Gillibrand spokesperson Evan Lukaske insisted that “the upheaval in the cryptocurrency market demonstrates why this bill is necessary,” because it adds some measure of regulation to an industry with no consumer protection or accountability. But financial reform groups have been alarmed by the bill’s particulars, which they see as no advance.
“There’s a lot not to like about the bill,” said Mark Hays, senior policy analyst for fintech at Americans for Financial Reform. “We largely see it as a bill that operates as sort of an industry wish list creating a regulatory regime that is light-touch, rather than reining in the risky exploitative practices that prevail in the space, and conferring legitimacy on a lot of those practices.”
It’s unlikely a bill like this would have come together without the sustained and expensive political efforts of the industry. Gillibrand joined up with Lummis at a Politico Live event sponsored by crypto asset manager Grayscale in March to announce her engagement on the bill; in late May, the two appeared at an event thrown by the Chamber of Digital Commerce, a crypto lobbying group. After the bill’s introduction, the two teamed up for a Washington Post Live event, again sponsored by Grayscale, that also featured CFTC Chairman Rostin Behnam. (As The Block reported, Lummis also booked appearances at Bitcoin Miami and the Heritage Foundation opposite Ted Cruz, to underscore the Republican embrace of the sector.)
It’s unlikely a bill like this would have come together without the sustained and expensive political efforts of the industry.
“There’s no indication that it represents the median or even a large part of the Democratic Party on the issue, it’s Gillibrand doing it on her own,” said Rohan Grey, assistant professor of law at Willamette University. Crypto-focused media like The Block have reported that the bill is unlikely to pass, and is more a messaging package than finalized legislation. But even that comes with certain risks. “The chance of the language of this bill becoming the default language is now much higher. It’s dangerous to even be taking this as a starting point,” said Grey.
Gillibrand spokesperson Lukaske asserted that the bill “isn’t a ‘Republican bill.’ It is a bipartisan bill with one Democratic senator and one Republican senator.”
Gillibrand’s embrace of crypto comes at a particularly surprising moment, given the current political climate. Gillibrand has long been vocal about her position as the most avowedly feminist senator; her 2020 presidential run sported a “fiercely feminist message” according to The New York Times, and featured policies attacking the gender pay gap, fighting abortion bans, and more. But in the final days before Roe v. Wade is expected to be struck down by the Supreme Court, snapping a number of statewide abortion bans into place, Gillibrand has trained her political capital on burnishing what many have decried as a financial deregulation bill, and courting the industry’s political support.
That’s especially surprising given the culture around cryptocurrency, which has long been dogged by accusations of misogyny coming from a very male supporter base. Having two female sponsors certainly doesn’t hurt with cryptocurrency’s gender-based optics problems. “There’s this toxic bro culture with crypto,” said Grey. “Look at how the crypto bros are constantly harassing Elizabeth Warren on Twitter.”
“Sen. Gillibrand has spent her career fighting for reproductive rights,” Lukaske said, “and the idea that working across the aisle on a financial regulation bill could somehow invalidate her entire career is not a serious position.”
Among the most important provisions in the bill is the assignment of “regulatory authority over digital asset spot markets to the Commodity Futures Trading Commission,” a chronically weak and underfunded regulatory authority compared to the more robust Securities and Exchange Commission. Crypto groups lobbied aggressively for this change, described as a “foundational, comprehensive start,” by Perianne Boring, CEO of the Chamber of Digital Commerce.
While the SEC has meaningful disclosure rules and an investor protection standard, the CFTC has no such mandate. Critically, added Hays, “they do not have the money, the capacity, or the technical expertise to grapple with the depth and breadth of crypto markets … which is what the industry has been looking for for a long time.”
There are other concerns as well. The bill’s provision directing the Government Accountability Office (GAO) “to conduct an analysis of the potential opportunities and risks associated with investing retirement savings in digital assets” has alarmed many critics, by providing a pathway to seeing the retirement accounts opened up to volatile, uncertain crypto investments. And while tapping the $11 trillion currently sitting in employer-based retirement accounts would do well to increase the prices of digital assets held by people like Sen. Lummis, anyone with cryptocurrency in their 401(k) would have had a rude awakening on Monday after those markets continued their many-months slide with another precipitous drop.
Lukaske disputed that the bill would “open the door for people to invest their 401(k) in cryptocurrency.” He said that the GAO analysis would merely report on the risks involved.
When Fidelity Investments announced that it would allow for Bitcoin in 401(k) accounts, the Biden Labor Department stated that it objected to the move roundly. “We have grave concerns with what Fidelity has done,” Ali Khawar, acting assistant secretary of the Employee Benefits Security Administration, told The Wall Street Journal in late April. Few progressives have joined the chorus of cheers coming from the crypto industry about these developments.
“The DOL urged fiduciaries to use caution before adding a cryptocurrency option to 401(k) investment menus,” Lukaske said. “Our bill, which pauses to study this issue, seems to be in concert, rather than discordant with the DOL’s position.”
That said, the bill does appear to be a long way off from a number of Democratic priorities, from both the Build Back Better Act, which sought to tax and regulate crypto relatively aggressively to pay for various social services, to the regulatory priorities of Democrats more broadly.
Gillibrand, meanwhile, is certainly aware of the spoils of an alliance with the industry. Already in May, crypto industry executives put $20 million into congressional campaign spending so far. Meanwhile, the industry has put over $100 million into lobbying since 2018. And she’s not the only New York Democrat to sidle up to the industry, though most progressives have stayed away—congressman Ritchie Torres was praising crypto on the grounds of “financial inclusion” as recently as March.
Gillibrand, who has professed not to own any cryptocurrency and who doesn’t accept contributions from corporate PACs or federal lobbyists, may be a true believer in the technology. But the timing of the political calculation, given the dire condition of the feminist issues she long championed in Washington, couldn’t look worse.
Not long ago, aggressive taxation of crypto looked like the path to paying for things like family leave. Now, with abortion bans spreading widely, one of family leave’s most vocal advocates has put forth a bill that even exempts crypto transactions under $200 from capital gains tax, and sides with the industry on a number of fronts.
