Lummis-Gillibrand is a boon for the crypto industry

There’s never a good time for a crypto winter, but it would be hard to imagine a worse time than right now.

Even before 70% of Bitcoin’s (BTC) value evaporated seemingly overnight, it didn’t fare well in the court of public opinion. Negative emotions were everywhere; a Twitter accounting document crypto bros take it on the chin racked up hundreds of thousands of followers. Now the largest crypto exchanges in the world are laying off full-time employees by the thousands, and the self-proclaimed “Cryptoqueen” has been placed on the United States Federal Bureau of Investigation’s list of ten most wanted fugitives for defrauding investors out of $4. billions. Ugh. The prosecution rests.

It’s easy to brush off crypto’s public relations problems as being just that: an image problem. Looks aren’t everything. This is the domain of diamond hands, not useless hand-wringing. Leave the unbelievers behind. We were never going to convince the hardcore naysayers and incorrigible skeptics anyway. (The problem with this line of thinking, no matter how reassuring its devil-may-care optimism, is that it always ends up advocating preaching to the choir as a viable strategy. It’s not. It never has been.)

A faceless crowd of hardcore naysayers and incorrigible skeptics have proven useful strawmen since crypto’s early days. But upon closer examination and in the aftermath of the crash, the skeptics eager to bring us to heel are real people with real power, and they were watching us closely before that line went down, down, down.

Related: Senator Lummis: My proposal with Senator Gillibrand empowers the SEC to protect consumers

This happens on both sides of the Atlantic. In Washington, crypto skepticism is increasingly the norm. Last September, Securities and Exchange Commission Chairman Gary Gensler compared stablecoins to “poker chips” and emphasized the need for Congress to increase its regulatory powers over crypto. Sponsored by Senators Kirsten Gillibrand (D) and Cynthia Lummis (R), a sweeping bill called the Responsible Financial Innovation Act arrived June 7, removed from the industry-shaking dolly after days, not months. Another bipartisan proposal — spearheaded by Senators Debbie Stabenow (D) and John Boozman (R) — came in August.

From downturns to recessions

This bill is not a symbolic gesture. It enjoys bipartisan support, for one thing, in a government where bipartisan support for anything has been virtually unheard of in recent years. The Commodity Futures Trading Commission, which Gillibrand helps oversee, would regulate crypto directly if (and likely when) the bill passes, reclassifying digital assets as commodities like wheat or oil in the process.

Related: GameFi developers could face heavy fines and hard time

The 69-page bill is so comprehensive that it may have to be split up and passed in stages. Lummis, it is worth mentioning, is not anti-crypto. She actively invited crypto industry leaders to work with her on legislation, which bodes better for crypto in general than a push to simply enforce and expand existing SEC regulations.

The industry should take her up on this invitation. The Lummis–Gillibrand legislation—frankly preferable to the narrower Stabenow–Boozman bill—would give exclusive jurisdiction to the CFTC over digital assets, except when the digital asset falls under securities regulation. It is worth noting that the CFTC has so far fared much better than the SEC, which has been woefully inadequate in providing regulatory guidance, attempting to govern the industry through enforcement that at times borders on outright punishment.

The sooner we get out, the better. Sensible regulation is not a bad thing for crypto, but hasty regulation can be. The fallout from this crash has the potential to create a sense of urgency among regulatory-minded lawmakers, forcing them to overreact and overcorrect with sweeping measures. From a regulatory perspective, the coldness of this crypto winter and the market’s failure to protect investors in any way is proof that we cannot be left to our own devices. An active, open collaboration would circumvent this.

Reason for cautious optimism?

We already know what the scorched earth legislation looks like, i.e. there is precedent for an entire country that just bans the wholesale sale of crypto mining. It is unlikely to happen in the US or the EU, since decentralized finance (DeFi) and traditional financial markets are now very intertwined. In the most capitalistic terms, it would not be profitable for traditional investors and markets to do away with crypto.

But crypto was never going to get out of this without a hitch. The sense of urgency created by this year’s crash is likely to hinder the potential for more measured and considered regulations individually tailored to crypto’s needs. Had the crash not occurred, lawmakers would likely have been more open to flexible, specifically designed measures.

It is now in danger. European Central Bank President Christine Lagarde calls crypto and DeFi a potential “risk to financial stability,” and is already pushing for a second expanded version of the Markets in Crypto Assets framework that has just been formally adopted. What was overlooked and not addressed the first time, namely aspects of betting and lending, will not be missed again.

Related: Get ready for the feds to start prosecuting NFT traders

But DeFi has become something of a scapegoat. It took the brunt of the blame after this market crash, and some of the blame was misplaced. Before the crash, the centralized providers took excessive risks and were not transparent about how they invested customer funds. Pure DeFi projects, where there was only a fully transparent smart contract on the blockchain, performed exactly as they should. As lawmakers on both sides of the pond look to regulate, now is the time to work with regulators to achieve balanced and sensible regulation and save DeFi’s skin in the process.

We cannot rely on things always only working in our favor. Fears that the EU Parliament’s Transfer of Funds Regulation (TOFR) would take a sledgehammer-over-scalpel approach to unhosted wallets and halting machine economy development ended up being partially unfounded, at least for the time being. Although it effectively entrenched the view that crypto transfers are riskier than other transfers, TOFR’s harshest measures were watered down enough to keep unhosted wallets afloat. In any case, the legislation targeting non-host wallets is being moved to the draft Anti-Money Laundering Regulation, where a more pragmatic approach is possible.

Related: Crypto developers should work with the SEC to find common ground

This is good news in a way. From a technical perspective, crypto and DeFi were not ready or able to follow the original version of the rules outlined in the TOFR. The adjustment bought us time – something the cryptosphere will not want if sweeping regulations come down hard and fast and without our input.

Maybe it’s no use crying over (frozen) spilled milk. But this crash has changed the regulatory game. I’m not trying to be a doomsday preacher here, but we need to be extremely proactive in approaching and working with legislators from here on out. The regulatory timeline has accelerated. Now our technological development (along with our ability to adapt and negotiate) must also be put into high gear.

Dominik Schiener is the co-founder and chairman of the Iota Foundation, which oversees one of the largest cryptocurrency ecosystems in the world. The foundation’s mission is to support research and development of new distributed ledger technologies, including the Iota Tangle. Dominik oversees partnerships and the overall realization of the project’s vision towards the machine economy.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.