Bitwise: Keep your eyes on Washington: Crypto risks from Congress are growing

Author: Matt Hougan, Chief Investment Officer of Bitwise; Translated by: AIMan@Golden Finance

I am very optimistic about the prospects for cryptocurrencies this year. The current environment - increasing institutional participation, an improving regulatory environment, and huge advances in blockchain technology - is very strong.

My base case forecast is that most crypto assets will trade at record highs this year, with Bitcoin topping $200,000.

But…

People often ask me what will hold crypto back. My answer is simple: people. More specifically, politicians.

Cryptocurrency prices rose after the November election, in part because people thought Washington would be positive about cryptocurrencies. So far, that has been the case. One hundred days into the Trump administration, we’ve seen:

• The U.S. builds up a strategic Bitcoin reserve, now holding nearly 200,000 BTC

• The White House lists digital assets as a “national priority”

• The SEC drops nearly all frivolous cryptocurrency-related lawsuits

• The SEC rescinds SAB 121 (a set of tough cryptocurrency accounting rules) and allows more banks and broker-dealers to do business in the space

• Operation Chokehold 2.0 ends, which cuts off cryptocurrency companies from traditional banks

• Crypto advocate Paul Atkins is named the new SEC chairman

• Prominent venture capitalist David Sacks is named “crypto and AI czar” by the White House

It’s truly an incredible list. However…

We Need Legislation to Solidify Our Progress

What each of the above initiatives have in common is that they all came out of the White House. This means they can easily be overturned by future administrations.

To advance crypto, we need Congress to pass legislation that puts crypto’s progress into a legal framework. Congress passing at least one crypto bill would demonstrate that Democrats and Republicans can agree on crypto and make it more difficult for future regimes to stop crypto’s progress.

Going into this year, I thought this was a sure-fire move. Specifically, I expected Congress to quickly pass stablecoin legislation that would pave a solid regulatory path for the world’s largest financial institutions to enter the stablecoin market.

After all, stablecoins offer something for everyone:

• For crypto, they broaden market access.

• For Wall Street, they create a new profit center.

• For Washington, they are a massive buyer of U.S. Treasuries and a vehicle to expand the dollar’s ​​global dominance.

Win, win, win, win-win.

Until recently, we were well on our way to victory.

In mid-March, the Senate Banking Committee passed a leading stablecoin bill called the GENIUS Act by a vote of 18-6. In that vote, five Democratic committee members crossed party lines to support the bill. Even Senate Minority Leader Chuck Schumer (D-NY) backed it.

But over the weekend, nine Democrats — including four of the five Democrats who voted for the bill on the Banking Committee, as well as Schumer himself — withdrew their support for the bill. They said the bill fell short on, among other things, anti-money laundering and know-your-customer (AML/KYC) protections.

This shift in attitude reflects the changing political environment in Washington. The revised version of the bill is actually tougher on anti-money laundering/know your customer (AML/KYC) and other aspects than the version passed by the Banking Committee, suggesting that the Democratic shift is less about any substantive concerns and more about President Trump’s declining approval ratings and growing discussion around his cryptocurrency-related conflicts of interest.

Politics is messy. But a lot of the time, it’s messier than it should be.

Also not helping: crypto industry forces are lobbying to combine stablecoin legislation with broader market structure legislation to create one big, beautiful crypto bill.

This is simply the opposite of a good thing. Market structure legislation is critical to the long-term future of crypto, but conflating factors makes it harder to pass any bill.

What Happens Next

I think the stablecoin bill will eventually pass. The benefits of stablecoins to the U.S., the dollar, merchants, entrepreneurs, and others are so clear that petty political wrangling won’t get in the way of its progress.

At least I hope so.  

The next few days and weeks will be challenging. If legislation fails, this could be a challenging summer for crypto. But if Washington can get its act together, I think the bull run will be unstoppable.

Anyway, keep your eyes on Washington.