Bitcoin (BTC), up 300% in the past 12 months, ether (ETH), up 700% in that time, and other top cryptocurrencies are on a dramatic bull run, driven by institutional investment and buy-in from big payments companies—and the fervor is bringing renewed attention to cryptocurrency regulation.
So, how might the Biden administration handle cryptocurrency? The answer depends on which member of the administration you examine. (President Joe Biden and Vice President Kamala Harris themselves have said next to nothing about crypto.)
Biden’s choice of Gary Gensler for SEC chairman was hailed by crypto flag-wavers as great news for the space. Gensler, former chairman of the CFTC (Commodity Futures Trading Commission), taught a 12-week course on cryptocurrency at MIT Sloan in Fall 2018 (“Blockchain and Money”), and has testified before Congress about cryptocurrency multiple times.
In a 2018 hearing in front of the House Agriculture Committee, former Minnesota Rep. Collin Peterson said that cryptocurrency “seems like a Ponzi scheme” and asked, “What’s behind this?” Gensler responded, “There’s really nothing behind gold either... Bitcoin is a modern form of digital gold.”
That is exactly what bitcoiners want to hear, especially as they have pushed the “digital gold” use case in the face of criticism that bitcoin isn’t really used as currency, and it certainly makes Gensler sound like a crypto believer.
In a 2019 op-ed for CoinDesk, Gensler also doubled down on the future potential of blockchain technology: “The potential this technology to be a catalyst for change is real... This last point – crypto and blockchain technology acting as a catalyst for change – may not fulfill the heightened expectations of maximalists, but may be [Satoshi] Nakamoto’s most enduring early contribution.”
But Gensler has also said that he views both Facebook’s Libra token (recently rebranded to Diem) and Ripple’s XRP token as securities, and that they should be regulated as securities by the SEC. That could spell bad news for Ripple and XRP holders in the lawsuit the SEC filed against Ripple on previous SEC chair Jay Clayton’s second-to-last day in office. The SEC action labels Ripple’s sales of XRP as unregistered securities offerings based on the agency’s Howey Test, and Gensler’s commentary in 2018 suggests he agrees: “Ripple Labs sure seems like a common enterprise... Ripple is doing a lot to advance the value of XRP.” (Ripple cofounder Jed McCaleb sold off $8.7 million worth of his XRP holdings this week.)
In the 2019 CoinDesk op-ed, Gensler also said that crypto exchanges have not yet been “appropriately brought within public policy frameworks,” a sign that he wants to see more regulation of exchanges. As SEC chair, Gensler will find himself in a position to bless or delay the imminent IPO of crypto exchange Coinbase.
More regulation is already in the works, from other agencies than the SEC.
Last month, FinCEN (the Financial Crimes Enforcement Network) proposed new customer information-gathering rules for crypto wallet providers. Companies like Square, Coinbase, and Kraken all voiced their displeasure. The discussion around increased regulation has highlighted a philosophical divide between Wall Street investors who welcome and cheer more regulation and early libertarian-type bitcoiners who initially gravitated toward the space because the lack of government interference appealed to them.
This month, the OCC (Office of the Comptroller of the Currency) granted a federal banking charter to crypto custodian Anchorage; three other crypto companies have applied for charters from the OCC since November: Paxos, BitPay, and Protego.
Biden’s choices for his financial regulator review team, the group advising the new president on his regulator appointments, also cheered crypto flag-wavers.
The group includes Reena Aggarwal, Chris Brummer, Simon Johnson, and Lev Menand.
Aggarwal is a Georgetown finance professor who has moderated panels on crypto and is a big believer in the potential of blockchain. Brummer is a Georgetown law professor who hosts a fintech podcast (“Fintech Beat”), edited an academic textbook on crypto assets and regulation, and testified before Congress about Libra token (he was not a fan, calling it a “failure”). Simon Johnson is an MIT Sloan professor who co-authored a book on blockchain’s potential in global finance. Lev Menand was an advisor to former Deputy Treasury Secretary Sarah Raskin, and helped lead the push for the development of a U.S. digital dollar.
And then there’s Janet Yellen.
The former Fed chair, now Biden’s pick for Treasury Secretary, has said in the past that she is “not a fan” of crypto (JPMorgan CEO Jamie Dimon used very similar phrasing in November) because of its use in financing illegal activity. She also said it’s “not a stable store of value and it doesn’t constitute legal tender.”
In her confirmation hearing on Jan. 19, Yellen again said cryptocurrencies “are of particular concern... many are used for illicit financing.”
None of that sounds like good news for bitcoiners, but Yellen said in 2014 that the Fed “doesn’t have authority to supervise or regulate bitcoin in any way,” and that financial regulators should not “stifle innovation” when it comes to crypto. She is not likely to think the Treasury has jurisdiction over crypto, either.
Crypto regulation in the U.S. will depend far more on the SEC, headed up by crypto expert Gensler, the OCC, where acting comptroller Brian Brooks was a huge friend to crypto but has stepped down, and the CFTC, where no replacement has yet been named for Heath Tarbert, who has been pro-crypto and announced in December that he plans to step down this year.
Daniel Roberts is an editor-at-large at Yahoo Finance and has covered bitcoin since 2011. Follow him on Twitter at @readDanwrite.