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Congress blocked SEC guidance on crypto as industry lobbying surged • OpenSecrets [1]

['Nicole Norman']

Date: 2024-05-31 16:41:19+00:00

An image of cryptocurrency exchange company logos. (Photo by Omer Taha Cetin/Anadolu via Getty Images)

Amid a lobbying blitz by the cryptocurrency industry, Congress voted for a resolution to overturn a Securities Exchange Commission bulletin discouraging banks from holding cryptocurrency assets.

Joined by 32 congressional Democrats, House and Senate Republicans unanimously voted for the joint resolution to block an SEC policy bulletin giving guidance on cryptocurrency earlier this month. Several Democrats who voted for the resolution despite the White House’s warning that President Joe Biden would veto it are top recipients of contributions from the crypto industry and other financial sectors.

Congressional efforts empowering cryptocurrency to grow coincide with a surge in industry lobbying, which hit an all-time high of $24.7 million in 2023. In the first quarter of 2024, the crypto industry spent another $5.6 million. Coinbase, an exchange platform, and Blockchain Association, a nonprofit organization advocating for crypto technology, spent the most lobbying in 2022 and 2023. They remained the top spenders for the first quarter of 2024.

The bulletin issued by the SEC would require companies to record their client’s crypto assets as an asset and a liability on balance sheets due to an “increased risk of financial loss.” The SEC says that this is due to technological, legal and regulatory risks.

Banks disapprove of the bulletin because it would limit the amount of non-crypto assets they can hold, said Dr. Micheal Dambra, a professor from the University of Buffalo.

Republicans in Congress also see the resolution as regulatory overreach.

“This bipartisan resolution is an essential effort to protect consumers and foster innovation in digital asset markets,” said Rep. Patrick McHenry (R-N.C.), chairman of the Financial Services Committee. “It’s also critical to stop the SEC’s regulatory power grabs and efforts to circumvent the Administrative Procedure Act.”

The Executive Office of the President’s Office of Management and Budget has made it clear that Biden will not support the decision if it arrives on his desk.

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“By virtue of invoking the Congressional Review Act, it could also inappropriately constrain the SEC’s ability to ensure appropriate guardrails and address future issues related to crypto-assets including financial stability,” it said in a statement

Dambra told OpenSecrets that the SEC bulletin makes it harder for banks to hold crypto, which makes it more difficult for an investor to protect their exchange-traded funds.

“The SEC wants crypto to be regulated as a traditional security when people don't think of it as a traditional stock,” Dambra said.

On May 8, 21 House Democrats voted for the resolution to strike the SEC bulletin. A little over a week later on May 16, 11 Senate Democrats also voted for the resolution. An OpenSecrets analysis found that many of these members of Congress are top recipients of political contributions from the cryptocurrency industry.

Rep. Richie Torres (D-N.Y.), one of the Democrats who voted with House Republicans, is the top recipient of contributions from the crypto industry in the 2024 election cycle. However, he told OpenSecrets that he did not meet with any crypto company regarding this decision, noting that custodian banks — financial institutions that safeguard securities and other assets — are also among those who would like to see this bulletin blocked.

Torres believes the resolution to be more about blockchain than cryptocurrency.

“One need not be a crypto cheerleader to see the value of blockchain technology, which has uses beyond crypto,” Torres’ office said in a written statement.

Other Democrats who supported the decision to block the resolution echoed Republicans’ accusations of SEC overregulation.

“It imposes an accounting approach that deviates from established standards, forcing financial institutions to count their customers’ digital assets as their own. This will limit options for consumers and leave them with less, not more consumer protection in cases of bankruptcy,” said Sen. Kirsten Gillibrand (D-N.Y.) in a written statement, the top Senate earner of crypto contributions in the 2024 election cycle.

The resolution was presented to Biden last Thursday. The deadline for him to sign or veto it is June 4. The resolution is not the only effort by Congress to take away federal oversight from the SEC when it comes to cryptocurrency.

Last week, with a bipartisan vote of 271 to 136, the House passed a bill that would take power away from the SEC to regulate crypto and let the Commodity Futures Trading Commission take the lead. SEC Commissioner Gary Gensler came out strongly against the bill in a statement, saying it would “create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk.”

However, Congress continues to push the issue, saying that SEC regulation is holding back crypto growth.

“Unfortunately, our current regulatory framework is preventing digital asset innovation from reaching its full potential,” McHenry said in a statement.

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[1] Url: https://www.opensecrets.org/news/2024/05/congress-blocked-sec-guidance-on-crypto-as-industry-lobbying-surged/

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