Crypto Has Prepared for Divided US Government, Republican Rise
As U.S. voters head to the polls Tuesday, the crypto industry is confident that it’s positioned itself well for the newly divided government expected to emerge when the votes are tallied.
Legislation that could finally establish U.S. oversight of digital assets is already bipartisan, and the industry’s funding of political campaigns has supported a number of well-placed Republicans.
“Split control of the federal government could bode well for future crypto policy and regulation,” said Kristin Smith, executive director of the Blockchain Association in Washington. “In the current Congress, there is growing bipartisan collaboration on major legislation, and we would expect that trend to continue, and likely accelerate, if control changes hands.”
However, while Republicans are more likely to emphasize a need for the U.S. to allow for crypto innovation and are less rigid about financial rules, taking over Congress doesn’t have an immediate impact on how cryptocurrencies will fare in future regulations. The heads of U.S. regulatory agencies remain Democratic appointees, and lawmakers still have a Democratic gatekeeper in President Joe Biden, who needs to sign off on any new laws.
“For the next couple of years, anything that goes through Congress will have to get the president's signature,” said Ian Katz, a managing director at Capital Alpha Partners, a Washington, D.C.-based research firm. “So while Republicans may provide a generally more sympathetic audience for crypto, that doesn't mean party time for crypto if the Republicans get control of Congress.”
If these midterm elections see a red wave of incoming Republicans, the major visible switch would be in the leadership of the chambers and the committees. The majority party tends to control the agenda for what issues come up and how. And when the administration is led by one party and Congress by another, it typically ignites an open warfare of committee hearings that relentlessly pummel the executive branch.
Crypto observers who have already stoked a dislike for Securities and Exchange Commission (SEC) Chair Gary Gensler, for instance, will likely be watching him targeted by Republican lawmakers eager to shred his agency’s performance.
“In a split government, the checks and balances intended by our founding fathers are really in play, and you often see congressional committee chairs try to exert their influence and authority over regulatory agencies and regulated industries,” said Keith Noreika, an executive vice president at Patomak Global Partners who ran the U.S. Office of the Comptroller of the Currency for a time.
A number of bills have been winding their way through Congress this year, but two are farther along than the others: an effort to oversee stablecoins and legislation that would empower the Commodity Futures Trading Commission (CFTC) to regulate the trading of certain tokens including bitcoin. Both are immersed in bipartisan negotiations, and they’re expected to provide the foundations of similar efforts in the new Congress next year.
If Rep. Patrick McHenry (R-N.C.) moves from ranking Republican on the House Financial Services Committee to become its chairman, he could pick right back up where he left off on stablecoin oversight this year. He said the committee leaders have already agreed on much of the bill.
The CFTC legislation is primarily an effort in the Senate Agriculture Committee – a product of common ground between Chairwoman Debbie Stabenow (D-Mich.) and top Republican Sen. John Boozman (R-Ark.) Though it doesn’t settle some of the uncertainties over which tokens should be regulated as commodities and which as securities, the Digital Commodities Consumer Protection Act (DCCPA) has drawn some industry support, including from FTX CEO Sam Bankman-Fried. However, the industry has also been wary of how it might affect decentralized finance (DeFi), so negotiations have continued.
The current Democrat-dominated government already provided cryptocurrency lobbyists some practice for navigating a partisan divide, because it was – for practical purposes – a majority in name only. The Democrat’s control of the Senate was so tenuous that legislation usually needed bipartisan support.
If Republicans McHenry and Boozman end up taking over their committees, crypto industry campaign donations have benefited both of them this year. Crypto political action committees (PACs) have given tens of millions to candidates from both parties. For several incoming freshman lawmakers, industry support will have been key to their victories.
In the House, the GOP is expected to increase its number of seats well over the 218 that would secure a majority. Republicans only need to win a handful of the many congressional races up for grabs, and most analysts have been predicting a majority well over 220. One estimate from BTIG this week puts the likely gain at 22.
In the Senate, Republicans need only shift one seat to their side, and polling has indicated they may have a slight advantage to get that, according to the latest analysis at fivethirtyeight.com. The question is expected to be answered by the races in Georgia, Nevada and Pennsylvania.
Another tight race is Arizona’s contest between Sen. Mark Kelly (D-ARiz.) and Republican challenger Blake Masters, one of the crypto industry’s greatest supporters in the midterms. So far, polling has suggested Kelly will win by a very narrow margin.