Regulation
Pelosi Could Support Industry-Friendly Domestic Crypto Bill
Speaker Emeritus Nancy Pelosi (D-CA) plans to vote for a Republican-backed crypto bill when it comes to a vote this week in the House, according to sources familiar with her thinking.
The bill, known as Financial Innovation and Technology for the 21st Century Act (FIT 21), was developed by Republicans on the House Financial Services Committee and represents the most comprehensive effort to date to regulate crypto, primarily from an industry perspective. The bill could also open loopholes for other financial instruments outside of crypto, experts say. Perspective. A Rules Committee Meeting on FIT 21 will take place later today, with in-room voting likely as early as Wednesday.
Pelosi is no longer part of the Democratic leadership, but her views still carry weight among many House Democrats. She also remains one of the Democratic Party’s most prodigious fundraisers, at a time when the crypto industry has brought in large sums of campaign contributions over the past two election cycles. The decision by House Republicans to give FIT 21 a vote allows these crypto PACs to definitively see where members of Congress stand on the issue before November and target spending accordingly.
If Pelosi supports the bill, she would break with the ranking Democrat on the Financial Services Committee, Rep. Maxine Waters (D-CA), who opposes FIT 21, as well as Rep. Brad Sherman (D- CA), another senior member. in Pelosi’s California delegation. In a communication to House Democrats, leaders did not say they would pass the bill, but only indicated that Waters and other prominent members “strongly” oppose it.
In 2022, Pelosi led the House Majority PAC, the super PAC supporting House Democrats, when he received 6 million dollars of disgraced crypto-billionaire Sam Bankman-Fried to support a candidate in an open-seat Democratic primary in Oregon. (That candidate, Carrick Flynn, lost the primary.) Pelosi personally received $2,900 by Nishad Singh, director of engineering for FTX, Bankman-Fried’s failed crypto exchange.
Coinbase, a leading exchange, no longer has a physical office but spent the first eight years of its life as a company based in Pelosi’s San Francisco district. Coinbase CEO Brian Armstrong has previously pushed for more lenient crypto regulation in Washington, even take a selfie with Pelosi in 2021. The company name appears on a coalition letter endorsing FIT 21 which was sent to House leaders last week.
In response to a question from PerspectivePelosi spokesman Aaron Bennett said he did not yet have an answer on his position on the bill.
FIT 21 ADDRESS THE THRESHOLD QUESTION in crypto regulation: what counts as a commodity and is therefore regulated by the Commodity Futures Trading Commission (CFTC), and what counts as a security, with oversight given to the Securities and Exchange Commission (SEC), more strict.
The bill would define all digital assets on a “decentralized” blockchain as a commodity and also give the CFTC regulatory authority over crypto cash or cash markets. This definition means that most digital currencies and coins would be subject to the CFTC’s regulatory regime, and even for crypto assets defined as securities, there would be several exceptions to SEC regulation. Stablecoins, which are pegged to the dollar and are used to facilitate cryptocurrency trading, would have only limited federal regulatory oversight.
In other words, the bill delivers what the industry has been seeking for some time: a regulatory regime largely dominated by the CFTC, which has been much more accommodating to the industry. The coalition’s letter said the legislation would help “accelerate the growth of blockchain technology and digital assets, promoting financial inclusion and protecting national security.”
Waters and other Democrats held a briefing with members and staff on FIT 21 on Monday, strongly rejecting the measure. Financial reform groups have been attack him During months. “This is a bill that, instead of creating regulatory standards for the crypto industry, attempts to rewrite financial regulation to benefit crypto,” says Mark Hays, senior fintech policy analyst at Americans for Financial Reform.
The bill delivers what the industry has been seeking for some time: a regulatory regime largely dominated by the CFTC, which has been much more accommodating to the industry.
In particular, advocates challenge Title II of the bill, which would modify the “Howey test» to determine what counts as security. The Howey test says that an “investment of money in a common enterprise, with a reasonable expectation of profits from the efforts of others” is a security. But FIT 21 would change this standard, in effect since the Securities Exchange Act of 1934, for digital assets. This would keep them out of SEC oversight.
Hays says this “creates a roadmap for other players on Wall Street to use the same rubric,” meaning other investment contracts could be drafted outside of crypto whose assets would be exempt from the securities laws.
Pelosi may not have 90-year-old financial regulatory laws in mind when evaluating the bill, but rather the realities of 21st century elections. As THE Perspective reported, Bankman-Fried’s conviction for criminal fraud has not slowed down the cryptocurrency train in the Democratic primaries. As of April, the industry had raised $80 million for the 2024 elections. Many Democratic members have recently been elected, from Sen. John Fetterman (D-PA) to Rep. Ritchie Torres (D-NY), himself a sponsor from FIT 21, with the support of the crypto industry.
This effort has paid off for crypto companies. Thirty-two Democrats in the House and Senate joined the Republicans last week to vote to rescind the SEC’s guidance on crypto accounting, a resolution that President Biden has vowed to veto. Pelosi was not one of the 21 House Democrats who voted for the resolution, but on the Senate side, Majority Leader Chuck Schumer (D-NY) was among the votes yes.
Schumer also unsuccessfully attempted to make a deal in the FAA reauthorization bill to include industry-favored legislation regulating stablecoins. There was speculation that Schumer was trying to protect Democratic Senators Sherrod Brown (D-OH) and Jon Tester (D-MT), who were threatened with campaign spending of the crypto industry against their re-elections.
During his Senate race this year, Rep. Adam Schiff (D-CA), a Pelosi protégé, added pro-crypto messaging on his campaign website, saying he would ensure that “the United States remains the world leader in these important new technologies.” As a result, he received an “A” rating from an outside group called Stand With Crypto, and his primary Democratic opponent, Rep. Katie Porter (D-CA), received $10 million in negative ads funded by the industry.
Several House Democrats have already lined up to support FIT 21, including Rep. Ro Khanna (D-CA) and Reps. Torres’ co-sponsors Wiley Nickel (D-NC) and Henry Cuellar (D-TX), who was recently charged with corruption. Support from House Democrats could determine whether the Senate feels the need to pass the bill, although that currently appears unlikely. Pelosi’s decision would largely determine where those numbers end up.
According to Hays, the potential financial windfall from supporting crypto and the assaults aimed at opposing it are driving Democratic decision-making. “It’s not about supporting crypto, it’s about trying to deal with the threat of super PAC promises.”