The midterm elections and turmoil in the crypto sector may have significantly altered the outlook for crypto legislation in the 118th Congress, slowing down any policymaking members of Congress hoped to achieve in the short term. Republicans aimed to flip the Senate and gain a substantial House majority, which could have allowed GOP-chaired committees to collaborate to advance Republican priorities across chambers. Instead, incoming House Financial Services Committee Chair Patrick McHenry (R-NC), who said passing digital asset legislation would be a top priority, will likely face political headwinds from a Senate Banking Committee chaired by Sen. Sherrod Brown (D-OH), who has said he isn’t sure new legislation will help.
House Republicans are expected to hold oversight hearings targeting financial regulators, handing lawmakers an opportunity to criticize how agencies have conducted themselves. While holding the gavel could compel House Republicans to act on legislation, it’s unclear whether administration officials will be receptive to their proposals after being called out for subpar performance. Remember, even if a bill clears the House and Senate, it still faces a potential presidential veto, leverage that often makes partnering with the administration on policymaking more important.
Bankruptcies in the crypto sector are also complicating matters. Committees in the House and Senate had hoped to hold hearings on legislative business relating to crypto policy this year. However, given the collapse of the prominent crypto exchange FTX and its ongoing effects on other crypto businesses, congressional attention seems to be focused on investigating what went wrong.
Congress will seek to understand FTX’s collapse so policymakers can craft consumer protections. This will take time, however, meaning we likely won’t see substantive proposals regulating digital assets as soon as previously thought. Additionally, legislation without significant bipartisan support will likely flounder in a divided government with slim majorities, which could also slow progress.
All of this gives stakeholders more time to educate and influence legislators, and hopefully Congress will act on well informed and carefully crafted proposals as they emerge. Either way, expect debate on crypto policy to continue for quite some time.