The growing congressional hyperpartisanship over the past two decades has tipped the balance of power among the three co-equal branches in favor of the executive branch. This was first noticeable after 9/11 but grew as presidents continued to assert more authority in the White House and throughout the agencies.
As a country, we’ve seen a number of consequential executive orders and regulations placed on citizens and businesses without consideration from Congress — and Congress has been unable or unwilling to stop them.
This is both ironic and tragic. The elected legislature was designed to be the strongest branch of government, as our Founding Fathers believed that legislators — representatives — were closest to the voters. Of course, while that remains true, it’s possible that legislators’ inability to work together is a result of the splintered electorate who put them in office.
Whatever the cause, the effect is a Congress that has largely abrogated its authority, which the executive branch has seized. This has allowed executive branch agencies that lack electoral accountability to regulate by enforcement — without distinct mandates or guidelines. This scene is playing out right now in a number of policy arenas, but none more acutely than among cryptocurrencies.
Over the last decade, digital assets and blockchain technology have developed from a fringe interest to a top concern of central banks and other financial institutions. But cryptocurrency remains underutilized and poorly understood. In the United States, this failure is symptomatic of congressional neglect.
Despite never designing a clear regulatory landscape for cryptocurrencies, some members of Congress added a slapdash cryptocurrency tax reporting provision to the bipartisan infrastructure bill. The provision uses such poorly defined language that the proposed requirements would be impossible for many to satisfy, effectively crushing American innovation in cryptocurrency and blockchain. Besides risking severe economic damage to the United States, Congress’ inability to write clear regulations for crypto serves as an open invitation for regulators to legislate for them, leading to aberrations like the SEC’s lawsuit against payments innovator Ripple — which was suddenly deemed afoul of the law after operating for seven years.
Statements from congressional leaders like Sen. Elizabeth Warren, D-Mass., who recently described cryptocurrency founders as “shadowy … super-coders,” foster public antipathy and call for bans instead of solutions. It has also induced tribalism among cryptocurrency holders, whose fear of arbitrary enforcement action has created mania and massive price swings among many digital tokens.
These problems are so severe that two of the SEC’s five commissioners recently issued a public statement decrying the “decided lack of clarity for market participants around the application of the securities laws to digital assets.” They called for “clear and timely answers,” noting that offering “piecemeal” guidance through enforcement actions was “not the best way to move forward.”
While the statement correctly diagnoses policymakers’ failings, it leaves a gaping hole for lawmakers to fill. Several of them have already proposed bills targeting this lack of regulatory clarity. In March, Rep. Warren Davidson, R-Ohio, reintroduced the bipartisan Token Taxonomy Act, which “specifies that digital tokens, such as those used in virtual currencies, are not securities for regulatory purposes” and outlines how such currencies could be taxed. In July, Rep. Tom Emmer, R-Minn., with bipartisan support from Reps. Ro Khanna, D-Calif., and Darren Soto, D-Fla., reintroduced the Securities Clarity Act, which would “provide a clear definition of assets like digital tokens and other emerging technologies under current securities laws.”
These bills, separately or in conjunction, would go a long way toward addressing current deficits, but their passage is far from certain. Neither bill has been considered by the House Financial Services Committee, chaired by crypto-skeptic Rep. Maxine Waters, D-Calif. For either to be brought to a vote, they would also need to go through Rep. Brad Sherman, D-Calif.,, who leads the Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets and has previously called for a ban on cryptocurrencies. The Eliminate Barriers to Innovation Act by Rep. Patrick McHenry, R-N.C., which would establish a digital assets working group, has fared somewhat better but now sits with a Senate committee chaired by another cryptocurrency hard-liner.
Despite the apprehensions of some congressional leaders, there is a growing bipartisan consensus that if regulators and policymakers fail to enact sound crypto policy, the United States risks losing its global financial supremacy. Simultaneously, there is increasing awareness that legislative deference to executive power and regulation deprives Americans of the power to shape policy in their interests.
Congress can address both problems at once by creating laws that would regulate cryptocurrencies without discouraging their innovative use to potentially improve global finance. Neither arbitrary enforcement actions nor last-minute legislative provisions are viable alternatives to a well-reasoned, forward-looking legal framework for a technology that will inevitably reshape international commerce and finance.
Craig Stevens is a partner at DCI Group, where he leads the firm’s crypto policy practice. He previously worked on Capitol Hill and in the George W. Bush administration.