The Biden administration’s stance on crypto appears to be softening. I feel comfortable saying this, despite the yearslong “whole-of-government” onslaught against the industry, due to a few key advancements in recent weeks.
First, and perhaps most significantly, Monday’s news that the U.S. Securities and Exchange Commission (SEC) may be gearing up to approve spot ether exchange-traded funds (ETFs). This would be a major reversal in fortune for an asset class assumed to be dead-on-arrival, especially considering the securities watchdog has recently been probing prominent Ethereum-related institutions.
While much of this is just speculation, based partially on words heard through the grapeview (i.e. “sources with direct knowledge of the situation”), it is telling that the SEC has asked for amended filings from prospect ETH ETF exchanges on an expedited basis. It would be an odd move if the agency planned to reject these applications outright.
Just yesterday, Bloomberg Intelligence placed the odds of an SEC approval of spot ETH ETFs at 25%. Today, it stands at 75% likely that these products – which would likely draw institutional capital into the second-largest crypto asset by market cap, in the same way bitcoin benefited from its own cluster of ETFs – will launch this year. (The SEC is expected to make a decision on VanEck’s spot ether ETF on May 23.)
Secondly, last week a bipartisan bill called the Deploying American Blockchains Act of 2023 was passed with a margin of 334 to 79 by House representatives. While modest in scope, the bill would enable the Secretary of Commerce, currently Gina Raimondo, “to take actions necessary and appropriate to promote the competitiveness of the United States” in the blockchain industry.
This comes ahead of the Senate’s vote on the Financial Innovation and Technology for the 21st Century Act (FIT21), considered to be the most significant piece of crypto-specific legislation with the greatest likelihood of actually becoming law. As my colleague Nikhilesh De astutely points out:
“House Democratic leaders on the Financial Services and Agriculture Committees told their members that while they oppose the FIT21 bill, they wouldn't actively whip against it – in other words, they essentially told their members to vote how they see fit.”
This is similar to recent votes in the House and Senate to repeal the SEC's controversial Staff Accounting Bulletin 121, which imposed severe capital requirements on crypto custodians and all but foreclosed the possibility of banks moving into the space (and strongly opposed by both the crypto and TradFi communities).
The theory is, when President Joseph Biden vowed to veto the measure to repeal SAB121, he cleared a path for congress members – including prominent Democrats like Senate Majority Leader Chuck Schumer (D-NY) and Finance Committee Chair Ron Wyden (D-OR) – to vote their conscience.
It remains to be seen whether Biden will veto the measure, despite the fact that the independent Government Accountability Office (GAO) said the SEC inappropriately imposed the guidance. However, the important thing here is that sane, bipartisan, crypto rulemaking is possible, despite the opposition of figures like arch crypto skeptic Senator Elizabeth Warren (D-MA).
Speaking of which, Warren may be losing influence in the Biden Administration. Yesterday, Federal Deposit Insurance Corp. Chairman Martin Gruenberg announced he would be stepping down after the Senate Banking Committee Chair, Sherod Brown, called for his resignation.
While the move does not directly pertain to crypto, it is worth mentioning that Gruenberg is a known confidant of Sen. Warren – and their view of crypto is largely cut from the same cloth. Under Gruenberg’s leadership, for instance, the FDIC took a hard line against crypto during the financial crisis in 2023 that brought down three medium-sized banks.
Although it largely cited poor risk-management and incompetent leadership, the FDIC also said Signature Bank’s “association with and reliance on crypto industry deposits” was a major cause for its failure in its report. That same year the agency officially added crypto to its annual report on risks facing U.S. banks and began entering into “robust supervisory discussions” with the firms under its charge.
Further, Castle Island Ventures co-founder Nic Carter considers Gruenberg to be one of the major “architects” of what he called Operation Choke Point 2.0, or a series of maneuvers by the U.S. government to systemically cripple the crypto industry (the name is a callback to the Obama era effort to de-bank unsavory industries). Indeed, following the collapse of FTX, the White House issued its first fact sheet related to crypto, essentially calling for a crackdown.
To be sure, there are a few major caveats to consider here. First of all, Gruenberg resigned under political pressure following a Wall Street Journal report on widespread evidence of sexual harassment at the FDIC. The septuagenarian himself wasn’t accused of harassment, however he did allow a toxic workplace culture to fester – which is why Sen. Brown called for his ouster (which Sen. Warren called “politically motivated”).
All of this is to say that crypto is not a motivating factor here, although some political commentators are looking at the Gruenberg situation as a sign of the Warren faction’s waning influence. For instance, John Deaton, who is challenging Sen. Warren for her senatorial seat this November, said it was “shameful” how Warren “circled the wagons to keep one of her disgraced puppets in place.”
It’s also important to note that Congress is not the White House, and the White House is not the SEC. In other words, there is no real reason to assume that the Biden administration is suddenly telling either Gary Gensler or legislators to, like, take it easy on crypto. These are all discrete events, but they’re all positive developments for crypto.
Regarding the possibility of ETH ETF approval, the going idea is that the SEC was resistant because it wasn’t having productive meetings with prospective issuers. And “the fact that their meetings became more recently productive doesn't necessarily mean there was a policy reversal,” as CoinDesk policy expert Jesse Hamilton said.
But what if there really were a driving force behind all of these developments? What explains the widespread sea change? And why would a Dem-controlled government suddenly become pro-crypto now?
The 100 pound gorilla
“The backdrop to all of this is an election where the Republican party's standard-bearer, former President Donald Trump, has explicitly made an appeal to crypto voters as part of his strategy,” De said...
Read the full article online.
– D.K.
@danielgkuhn
daniel@coindesk.com
