A Mounting Risk for Crypto in D.C.

I’m increasingly concerned Congress will fumble the ball at the 1-yard line.

I’m extraordinarily optimistic about the outlook for crypto this year. The setup—rising institutional participation, an improved regulatory environment, and massive advances in blockchain technology—is  extremely strong.

My base case is that most crypto assets will trade to new all-time highs this year, with bitcoin rising above $200,000.

But…

People often ask me what could derail crypto. My answer is simple: people. More specifically, politicians.

Crypto rallied after the November election in part on the assumption that Washington would take a positive view toward crypto. And so far, it has delivered. One hundred days into the Trump administration, we’ve seen:

• The creation of a U.S. strategic bitcoin reserve holding nearly 200,000 BTC

• Digital assets named a “national priority” by the White House

• The SEC reversing nearly all of its frivolous crypto-related lawsuits

• The SEC reversing SAB 121—a draconian set of accounting rules for crypto—and permitting more banks and broker-dealers to do business in the space

• The end of Operation Choke Point 2.0, which cut off crypto firms from traditional banking services

• Crypto advocate Paul Atkins confirmed as the new chair of the SEC

• Noted venture capital investor David Sacks named as the White House’s “crypto and A.I. czar”

That is an incredible list. And yet…

We Need Legislation To Cement Our Progress

The thing that unites the items listed above is that they have all sprung from the White House. That means they could easily be reversed by future administrations.

To move crypto forward, we need Congress to pass legislation enshrining crypto’s progress in law. Congress passing at least one crypto bill would show that Democrats and Republicans can align on crypto and make it more difficult for future regimes to undo progress.

Going into this year, I thought this was a slam dunk. Specifically, I expected that Congress would rapidly pass stablecoin legislation, creating a firm regulatory pathway for the largest financial players in the world to enter the stablecoin market.

After all, stablecoins offer something for everyone:

• For crypto, they broaden access to the market.

• For Wall Street, they create a new profit center.

• For D.C., they are a massive buyer of U.S. debt and a tool for extending dollar dominance around the world.

Win, win, win.

And until very recently, we were tracking well toward this victory.

In mid-March, the Senate Banking Committee voted 18 to 6 to pass the leading stablecoin bill, called the GENIUS Act, out of committee. For that vote, five Democratic committee members crossed party lines to support the bill. Senate Minority Leader Chuck Schumer (D-NY) even added his support.

But over the weekend, nine Democrats—including four of the five Democrats who voted the bill out of committee, plus Schumer himself—withdrew their support. The bill, they say, does not include enough anti-money laundering and know-your-customer (AML/KYC) protections, among other things.

The change in tune reflects the shifting political environment in Washington. The amended version of the bill is actually stronger on AML/KYC and other items than the version that passed out of the Banking Committee, suggesting the Democratic about-face has more to do with President Trump’s slumping approval rating and rising chatter over his crypto-related conflicts of interest than any substantive concern.

Politics is messy. But too often, it’s messier than it needs to be.

Also not helping: Forces in the crypto industry are lobbying to combine stablecoin legislation with broader market structure legislation to create one big, beautiful crypto bill.

This is the perfect becoming the enemy of the good. Market structure legislation is extremely important to crypto’s long-term future, but lumping things together will make the passage of any bill more difficult.

What Happens Next

I ultimately think the stablecoin bill will pass. Stablecoins are too obviously beneficial—to America, the dollar, merchants, entrepreneurs, and others—for petty political jockeying to derail progress.

At least I hope so. 

The next few days and weeks will be fraught. If legislation fizzles, this could be a challenging summer for crypto. But if Washington can get its act together, I think the bull market will be unstoppable.

In either event: Keep your eye on Washington.

Risks and Important Information

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