(Kitco News) – The charged political landscape around cryptocurrencies continues to get more electric as lawmakers in the House are looking to implement a House Appropriation budget that could prevent the U.S. Securities and Exchange Commission (SEC) from implementing its controversial Staff Accounting Bulletin 121 (SAB 121).
Recently, both the House and Senate approved measures seeking to overturn SAB 121, a measure designed to help clarify accounting treatment for crypto assets by directing banks holding a customer's digital tokens to do so on its own balance sheet, potentially incurring massive capital expenses.
Crypto fans rejoiced at the rare bipartisan approval achieved in both chambers of Congress, but the celebration was short-lived as President Biden vetoed the legislation late on Friday.
Numerous lawmakers, including Senator Cynthia Lummis (R-WY), vowed to continue fighting against the measure, which many in the crypto industry say will only serve to stifle innovation and put the U.S. even further behind more welcoming jurisdictions.
And it didn’t take long for the next step in the battle to emerge as FOX Business reporter Eleanor Terrett reported on Tuesday of the appearance of a new item on the docket for the House Appropriation budget bill set to be debated on Wednesday.
“Look what has found its way into a @HouseAppropsGOP budget bill that is set to be marked up at a hearing tomorrow at 8:30AM EST,” Terrett tweeted. “One of the provisions, or ‘policy riders,’ of the bill prohibits the @SECGov from using appropriated funds to implement SAB 121, as well as its controversial climate disclosure rule.”
“It also provides the SEC with just $2B in overall funding in fiscal year 2025, compared to the $2.59B requested by @GaryGensler earlier this year,” she added. “It also cuts back funding of the SEC’s ‘aggressive’ Enforcement Division by $168M.”
“I’m told the bill will likely pass on party lines tomorrow and then will have to be negotiated with any appropriation bill the Senate passes,” Terrett said. “But positive news for the SAB 121 policy rider is that many Senate Dems also voted to overturn SAB 121, including @SenSchumer, so it’s likely that the provision will be kept in when the final bill ultimately finally gets voted on.”
The fate of the bill is still being debated at the time of writing, but the ordeal highlights the growing prominence of cryptocurrencies in U.S. politics and the differences that remain between Democrats and Republicans.
Evolving battle for the future of crypto
“Few outside the crypto bubble seem to notice Washington’s evolving attitude toward crypto,” wrote Matt Hougan, chief investment officer at Bitwise. “That could spell alpha. ‘Alpha’ is the rarest commodity in the world.”
“Investopedia defines alpha as ‘an investment strategy’s ability to beat the market,’ or its ‘edge,’” he said. “It’s rare because markets are competitive.”
“To unlock alpha, you need to know something the market doesn’t. That’s hard. There are hedge funds, institutions, and high-frequency trading firms with vast experience and billions of dollars lined up against you,” he noted. “Good luck!”
“But every once in a while, I see something in the market that smells like alpha. And when I do, there is nothing more exciting,” Hougan said. “One of those moments is now.”
Citing multiple pro-crypto developments in recent weeks, Hougan said, “There has been a significant change in Washington’s attitude towards crypto over the past month.”
“For the past few years, crypto has largely broken down on partisan lines,” he said. “The GOP has been broadly favorable toward crypto, while big segments of the Democratic Party have been hostile. As evidence of Democratic hostility, consider Senator Elizabeth Warren (D-MA), who announced her plans to ‘build an anti-crypto army’ last March. It doesn’t get more hostile than that.”
But the battle hasn’t been one-sided, he noted, as “crypto has been building political muscle in recent years, including assembling one of the ten largest political action committees in Washington.”
“It appears that effort has paid off,” Hougan said. “The shift started on May 8, when 21 Democrats crossed the aisle in the House to vote for the repeal of SAB 121, an absurd rule put in place by the SEC that effectively prevents large banks from custodying crypto assets. Days later, 10 Senate Democrats (including Senate Majority Leader Chuck Schumer) joined the GOP to vote for its repeal. It was the first piece of positive legislative action on crypto in U.S. history.”
“Then, on May 20, a stunning 71 Democrats joined 208 Republicans to vote for FIT21, a comprehensive piece of crypto legislation that would (among other things) grant primary oversight of crypto to the crypto-friendly Commodity Futures Trading Commission (CFTC),” he noted. “Adding to the momentum, the SEC – led by Democrat-appointed chair Gary Gensler – approved filings to list spot Ethereum ETFs, something few expected this spring.”
Hougan said that while President Biden’s veto of the SAB 121 repeal – which “defied the growing bipartisan majority in both houses of Congress” – shows that “Crypto still has a long way to go, politically speaking… the winds have started to change.”
“The reason this smells like alpha to me is that, outside of the crypto bubble, no one cares,” he said. “I’ve been on the road speaking at conferences for the past few weeks and, try though I might, I cannot get this story to resonate with people. I talk about the votes, and Warren’s anti-crypto army, and the surprise progress on Ethereum ETFs, and people’s eyes glaze over.”
He said that despite the notable developments, “The tide has changed, but the water hasn’t come in yet.”
“But here’s the thing: If people understood the ramifications of the shift in D.C., the crypto market would be at new all-time highs,” Hougan wrote. “Financial advisors in the U.S. manage an estimated $20 trillion in wealth. Each year for the past six years, we’ve asked these advisors to share what’s preventing them from having greater exposure to crypto in their portfolios. And for five consecutive years, the top answer has been the same: regulatory uncertainty. That was Headwind Number One for 64% of advisors in our most recent poll. That bears repeating: nearly two-thirds of advisors.”
“Imagine, then, how much of that $20 trillion will go into crypto when the biggest barrier gets lifted,” he posited. “Or take Wall Street. In recent years, some of the largest banks have either backed away from crypto or tiptoed into the waters for the very same reason. For example, The Bank of New York, Nasdaq, and State Street Bank each announced plans to launch crypto custody services in the past two years, only to shut down those initiatives in the face of regulatory uncertainty.
“If you think BlackRock’s move into the crypto space positively impacted the market, imagine if all of Wall Street accepted crypto as a normal part of the market,” Hougan concluded. “Talk about mainstream. The market will wake up to the fact that we are in a new era for crypto, and when it does, I suspect it will move the industry towards all-time highs. But until it does, there may just be some alpha lying around.”
