The fight over crypto regulation in the US

Two distinct camps have emerged in the battle over crypto regulation in the US, with one camp strongly in favor of tight regulation and the other an openly pro-crypto faction. Compared to the EU, however, there is a long way to go.

On March 9, President Joe Biden kicked off the race to legislate crypto in the United States with an executive order (EO). It asked the US federal authorities to draft an international regulatory framework for digital assets, to be adopted in cooperation with foreign counterparts. The unusually long EO lists several specific priorities, including stablecoins, central bank digital currencies (CBDCs), consumer protection, criminal and illegal activity, and international enforcement cooperation.

Biden’s EO makes it explicit that the US intends to be the global leader in the regulatory and enforcement network for crypto – but the EU is already pushing a comprehensive set of regulations in its parliament, called MiCA, which has already sorted out some of the more difficult stuff. points that have both camps in the United States clashing.

The biggest debate surrounding crypto regulation in Europe concerns the environmental impacts of crypto mining. MiCA stops short of introducing a mining ban, but the EU’s Parliamentary Economic and Monetary Committee added a clause that crypto miners must disclose energy consumption and that exchanges must present energy usage for the significant cryptocurrencies it lists.

After this official addition, it seems that the environmental debate in Europe about crypto regulation is settled, at least for the time being. In the US, it remains one of the biggest points of contention.

Crypto critics camp, led by Senator Warren

Democratic Senator Elizabeth Warren is leading the crypto critic camp, pushing for strong environmental regulations and consumer protections.

Last year, Warren said the crypto market is a Wild West and an environmental disaster. In a recent interview with NBC, Warren argued that Bitcoin is just a speculative instrument with no utility and that we need to ensure that it is not used by rogue and criminal elements.

Warren is also concerned about small investors. She has previously called for a crackdown on DeFi and stablecoins, calling them out a risk for the consumer and the economy. The senator criticized Fidelity for offering bitcoin to its clients in their 401Ks.

Warren admits that cryptocurrencies could be beneficial in providing increased financial services to the unbanked, but she prefers to see this happen through a CBDC.

Read more: The EU’s MiCA will raise the standard for crypto regulation — with some challenges

Despite Warren’s concerns about Bitcoin, she is not campaigning to ban it. Warren has marked her career fighting for consumer rights, and she is actually known for being one of the advocates behind the government’s Consumer Financial Protection Bureau (CFPB), which President Obama tasked her with forming.

The CFB enforced increased transparency and disclosure obligations towards consumers of credit and banking institutions, while introducing restrictive provisions such as not allowing arbitrary fees.

Still, Warren probably will fight for environmental regulationgiven that when it comes to consumer rights, there is unanimous agreement that increased regulation is necessary.

Last week, Warren sent a letter to the US Environmental Protection Agency and the Department of Energy urging them to require cryptominers to report their energy use. This will allow the government to understand how much energy miners use and hopefully regulate the industry.

Critics were quick to respond with videos of Warren descending the steps of one private plane, while some influencers rally the support of bitcoin miners. However the market did not move on the news, and hardly anything was heard from the miners themselves.

A day after Warren’s letter, FTX CEO Sam Bankman-Fried posted one long thread on Twitter discussing what he called “crypto’s potential use cases.” According to him, these are:

• the ability to transfer money online without an intermediary at any time and with minimal fees,
• tokenize traditional financial assets such as stocks to avoid broker intermediaries,
• and the social media decentralization use case (which was rather vague and ambiguous compared to the previous two).

Read more: Sam Bankman-Fried learns that crypto donations don’t always win elections

Pro-crypto supporters want less regulation than the EU

The pro-crypto camp in the US also proposes regulation, but not as extensive as MiCA in the EU. On June 7, senators Kirstin Gillibrand (Democrat) and Cynthia Lummis (Republican), both funded by the crypto industry and Sam Bankman-Fried himself, published a bipartisan bill on crypto that, among other things, similar proposal for MiCAespecially with regard to stablecoins and transparency obligations at exchanges, but with some caveats and differences.

The bill contains the same EU obligation for brokers not to use client funds as collateral, although in Gillibrand’s and Lummis’ version of the law, clients can also opt out of being protected and can allow their funds to be gambled. Like the EU’s proposal, the bill obliges stablecoin issuers to fully cover their reserves with cash and treasuriesbut leaves out clear and explicit EU provisions placing the onus on the stablecoin issuer to pay its creditors in the event of a loss.

The Democratic Senators for Cryptocurrency propose that stablecoin issuers should have:

• a main account with the Federal Reserve,
• tax-free crypto lending schemes in the same way as securities lending,
• and tax crypto mining and staking activities on realized gains but not on unrealized gains.

Read more: Crypto lobbying intensifies with $20 million ‘Gonna Make It’ political fund

The battle over US crypto regulation is heating up

Pro-crypto lobbying has significantly turned up the heat on the crypto regulation debate. In the EU, crypto firms funded lobbying efforts to stop lawmakers from introducing additional identity checks on cold wallets. The bill passed, but not without receiving harsh criticism from crypto bosses like Coinbase CEO Brian Armstrong.

Since 2018 has spent on crypto lobbying in the US has quadrupled; so has the number of lobbyists pushing pro-crypto agendas. Last year, lobbying by crypto companies more than doubled to $9 million.

This year, more than $30 million has been pumped into pro-crypto campaigns so far, aimed at Biden’s policies.

However, the Gillibrand-Lummis bill is not likely to come up for a vote this year, and while the content of MiCA is mostly finalized, it will at least two and a half years until it is enforced.

The framework ordered in Biden’s EO is coming soon – the first ones have already been presented. While it remains to be seen whether the US will regulate crypto like the EU, or with a few caveats, one thing is clear: cryptocurrency firms have already done enough to ensure it’s here to stay.

For more informed news, follow us further Twitter and Google News or listen to our investigative podcast Newly created: Blockchain City.