GOP crypto revamp moves ahead with Democrats divided

The House Financial Services Committee late Wednesday advanced a landmark bill that would overhaul cryptocurrency regulation, in a bipartisan vote that marked a major victory in the digital asset lobby's bid for legitimacy.

The Republican-led proposal, part of a plan that the House Agriculture Committee is also set to approve Thursday, would mandate in federal law for the first time how two key market regulators — the SEC and the CFTC — police crypto trading.

The Financial Services Committee approved the plan in a 35-15 vote despite resistance from the panel's top Democrat, Rep. Maxine Waters (D-Calif.), who blasted it as "a wish list of Big Crypto" and rallied lawmakers to oppose it. Six Democrats broke with Waters and supported the bill: Reps. Josh Gottheimer of New Jersey, Jim Himes of Connecticut, Steven Horsford of Nevada, Wiley Nickel of North Carolina, Brittany Pettersen of Colorado and Ritchie Torres of New York.

"I am confident that this legislation, while not perfect, makes the status quo better," Himes said.

The clash illustrates the fluid politics around crypto policy following a boom and bust that revealed widespread industry mismanagement and consumer protection concerns.

The House Republicans who drafted the legislation argued Wednesday that it was an attempt to fill gaps in the existing regulatory regime and to deter digital asset firms from leaving the U.S. for other countries with crypto-specific rules.

"It is better, at worst case, than what we have currently," Financial Services Chair Patrick McHenry (R-N.C.) said.

The bill would give explicit digital asset authorities to the SEC — a regulator that has become increasingly active in policing crypto fraud and investment law violations — but impose new boundaries on the agency. The part of the plan that the House Agriculture Committee will consider Thursday would give the CFTC sweeping new powers over crypto trading, expanding jurisdiction that today focuses on futures contracts and other financial derivatives.

It's an arrangement that the crypto lobby has long sought amid an escalating clash with the SEC over its jurisdiction. Jonathan Jachym, who heads global policy for crypto exchange Kraken, called Wednesday’s vote “a critical step toward regulatory clarity.” Kara Calvert, head of U.S. policy for the Coinbase exchange, said, "the wind is at the back of crypto legislation."

Democrats blasted Republicans for rushing the process. They said that the plan was unnecessary and could make it harder for the SEC, which already brings crypto enforcement cases under existing law, to police digital asset firms.

“There’s not uncertainty, they just don't like the certainty they’ve got,” said Rep. Stephen Lynch (D-Mass.), who voted against the bill.

Republicans spent the last few weeks tweaking the plan to draw more Democrats, including by agreeing on Tuesday to give a funding boost to the CFTC to implement the legislation. They continued working to build Democratic support as House Financial Services debated the bill Wednesday.

At one point, Pettersen disappeared into a back room with McHenry’s deputy on the bill, Rep. French Hill (R-Ark.). After they emerged, Pettersen indicated she would support the legislation with a commitment from Republicans to work on floor amendments addressing illicit activity.

"Not enough is said in this bill," Pettersen said. But "right now, we don’t have an amendment that is ready."

Committee Republicans adopted five Democratic amendments. But the edits failed to convince Waters and other crypto skeptics on her side of the aisle.

“You don’t need to invent new regulatory structures simply because crypto companies refuse to follow the rules of the road,” Waters said.

Breaking with Waters, Himes on Wednesday described the status quo of crypto regulation in the U.S. as "total chaos," with crypto startups, agencies and the courts at odds over how the market should operate.

Himes said he and his staff had "hundreds of hours of engagement" on the bill with committee Republicans and the law firm WilmerHale. He said GOP members incorporated "each and every one" of the changes he suggested.

"Are we comfortable walking away having done nothing?" he said. "The status quo is this: $2 trillion in value lost in the crypto asset markets. $2 trillion evaporated in what is a Wild West. An FTX collapse, which might have been prevented by this legislation, that devastated smart and dumb money alike. We don't want to see another FTX collapse."

The Democratic amendments that Republicans accepted included one from Lynch that removed a section of the bill that would have added "innovation" to the SEC's mandate, following complaints that doing so could open the door for firms to evade oversight. They also adopted an amendment from Gottheimer that would direct the agencies to create a process for delisting an asset and another from Himes that would give the SEC six months, rather than three, to determine whether an exchange is decentralized. The committee approved changes from Nickel and Horsford, as well.

Bipartisan votes could help give Republicans a fighting chance as they face widespread skepticism in the Senate, where the bipartisan focus has been on rooting out money laundering and other illicit activity in crypto.

“The House bill is the crypto industry’s wish list,” Sen. Elizabeth Warren (D-Mass.) said in an interview. “I don't see how a bill like that makes it through.”

Republicans signaled a hope that Waters might help them pass a separate, more-narrow crypto bill Thursday focusing on the regulation of stablecoins, which are digital tokens backed by assets like the U.S. dollar. One key sticking point: the role states will play.

McHenry said they were still talking through the stablecoin bill, including with the Treasury Department. He declined to rule out that he would postpone the stablecoin bill vote until September, when Congress returns from its August recess.

“No news today to report on a breakthrough,” McHenry said. “But we will continue to talk.”