Bitcoin should be central to the regulation of digital assets

The chairman of the House Financial Services Committee, Representative Patrick McHenry (RN.C.) recently outlined two critical priorities for the House Republican Majority’s crypto work this year – market structure and stable coins. While McHenry’s comments on stablecoins have received most of the attention, the committee’s market structure work has the potential to allow the United States to seize a key advantage over its global competitors in the future of the economy.

American politicians should take advantage of crypto’s oldest tool and the work of a mysterious figure who just turned 48. Unfortunately, Satoshi Nakamoto’s essential contribution, Bitcoin, has somehow taken a back seat for two years with crypto news focused more on Sam Bankman-Fried’s weaknesses and Do Kwon’s whereabouts. Despite all this drama, Bitcoin endures, and 15 years after Satoshi’s seminal white paper, its role in society and implications for US politics are becoming clearer.

John Rizzo is senior vice president of Public Affairs at Clyde Group where he provides strategic consulting and communications. He most recently served as a senior spokesperson at the US Treasury Department covering digital assets, fintech, climate finance, financial stability, domestic finance and economic policy.

Bitcoin is not a panacea for everything that ails the economy. Moreover, it is not yet a reliable medium of exchange for daily transactions or a true rival to the US dollar. But it has emerged as an alternative source of value — a kind of digital gold, if you will — and a tool American lawmakers can grasp as they confront an increasingly volatile and polarized world.

Moreover, if dissidents in foreign countries can access sources of value outside the control of the regime that oppresses them, the political equation can change. And suddenly democratic change in non-democratic countries may be possible – certainly not guaranteed, but clearly more possible.

There is also a more benign foreign policy advantage to Bitcoin than rivalry between countries. American residents often take the stability of our nation’s currency for granted. But residents of many other countries do not have that luxury, and millions have learned how one’s financial circumstances can change when a national currency appreciates. So while Bitcoin is also volatile, residents of unstable countries can use it as a preferred hedge against domestic financial risk. Holding Bitcoin is undoubtedly easier for this hypothetical citizen than opening an American or European bank account to store dollars or euros. Is holding bitcoin (BTC) the perfect answer? Probably not. But it can serve as financial insurance against instability in countries with fragile economies.

Here in the US, crypto market structure legislation that supports Bitcoin could also positively affect US priorities beyond foreign policy. For example, while the current unemployment rate is low, bitcoin mining could provide jobs, especially in rural communities left behind by economic growth in recent decades.

Of course, many, including the Biden administration, point to bitcoin mining’s impact on the environment, but the exact degree is disputed. It is also important to note that the downside to the environment is not unique to bitcoin – economic activity tends to use energy, which drives emissions and exacerbates climate change. There is also evidence that bitcoin mining has a beneficial impact on electrical grids. There is no reason why bitcoin mining cannot be reoriented towards renewable energy. Many are already moving in that direction.

So, as lawmakers consider the crypto market structure, how can they take advantage of bitcoin’s potential? First, they should enter the new consensus that bitcoin is a commodity. Second, they should set up a regime of spot market regulation overseen by the Commodity Futures Trading Commission.

Third, they should ensure that bitcoin mining takes place in the United States, where the environmental impacts can be handled more strictly than in a country with little regard for the environment. Finally, they should incentivize bitcoin mining, which uses renewable energy and pays workers family-sustaining wages.

Approaching two decades since Satoshi’s landmark white paper, we still know very little about this enigmatic author’s politics or identity (though that hasn’t stopped anyone from speculating). But we understand that this person (or persons) created an innovation – a technology derivative of another technology, encryption. As we have seen time and time again, technology can be used for good or bad. It can create jobs or destroy them. It can harm the environment or strengthen efforts to protect it. The art of sound policy-making is to weigh the good and the bad, risk and reward, and put policies in place that promote the common good.

As Congress begins crafting crypto policy, we hope they take advantage of this unique Bitcoin opportunity. They can even draft the legislation on a Mac if they want.