A Little Regulation Is Just What Crypto Needs

Sometimes industries want to be regulated. It’s not that they favor all of the associated restrictions, but that regulation means legitimation. The mere act of passing laws circumscribes some activities as deserving of legal protection.

Which brings us to crypto. Currently, if a US financial institution issues crypto assets, there is a high risk that the Securities and Exchange Commission will declare them to be securities and regulate them accordingly. Ideally, the SEC would provide a formal definition of what is and is not a security, and the crypto sector would try to work around those rules. Instead, through inaction, the SEC has allowed a de facto ban on much of crypto. In the longer run, that undermines democratic ideals of transparency and rule of law.

The good news is that last week the House of Representatives passed a bill that would establish regulation for digital asset markets. It is not common for the libertarian elements of the US political system to support new laws, but in this case they do. Whatever objections one may have to the details of the bill, it would put the crypto sector on sound legal footing and enable its growth within the US. The bill also would place much of crypto regulation under the Commodities Futures Trading Commission, which is likely to be friendlier than the SEC.

Until now, no significant bill related to crypto had passed either chamber of Congress. It remains to be seen what the Senate will do, although it is unlikely that the bill will reach the desk of President Joe Biden, who opposes it, by the end of the year. It is notable, however, that 71 of the 279 votes in support of the bill in the House came from Democrats. That indicates crypto regulation is a bipartisan issue, if only because so many Americans claim to hold crypto assets, 12% by one estimate.