The Biden Administration Is Easing Up on Crypto (a Vibes Analysis)

The Biden administration’s stance on crypto appears to have softened. I can say this with confidence despite the years-long “whole government” attack on the sector due to several important developments in recent weeks.

Note: The opinions expressed in this column are those of the author and do not necessarily reflect the views of CoinDesk, Inc. or its owners and affiliates. This is an excerpt from The Node newsletter, a daily digest of the most important crypto news from CoinDesk and beyond. You can subscribe to access the full newsletter here.

First, and perhaps most importantly, is Monday’s news that the U.S. Securities and Exchange Commission (SEC) may be preparing to approve spot ether exchange-traded funds (ETFs). This would be a major reversal of fortune for an asset class that was supposedly dead on arrival, especially given that the securities watchdog recently investigated leading Ethereum-related institutions.

While much of this is merely speculation based in part on hearsay (i.e., “sources with direct knowledge of the situation”), it appears that the SEC is requesting corrected filings from prospective ETH ETF exchanges on an expedited basis. It would be an odd move if the agency planned to reject these applications outright.

Just yesterday, Bloomberg Intelligence put the odds of spot ETH ETFs being approved by the SEC at 25%. Today, there is a 75% chance of these products launching this year, which could attract institutional capital into the second-largest crypto asset by market cap, just as Bitcoin has benefited from its own cluster of ETFs. (The SEC is expected to rule on VanEck’s spot ether ETF on May 23.)

Second, last week, a bipartisan bill called the American Blockchains Deployment Act of 2023 was passed by House representatives by a margin of 334 to 79. Although modest in scope, the bill would allow the Secretary of Commerce (currently Gina Raimondo) to “take necessary and appropriate actions to enhance U.S. competitiveness” in the blockchain industry.

See also: Why the SEC Should Not Classify ETH as a Security | Idea

This comes ahead of the Senate’s vote on the 21st Century Financial Innovation and Technology Act (FIT21), which is considered the centerpiece of crypto-specific legislation that is actually the most likely to become law. As my colleague Nikhilesh De astutely points out:

“House Democratic leaders on the Financial Services and Agriculture Committees told their members that while they opposed the FIT21 bill, they would not actively oppose it; in other words, they essentially told their members to vote as they saw fit.”

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This is similar to recent votes in the House and Senate to repeal the SEC’s controversial Staff Accounting Bulletin 121, which imposed severe capital requirements on crypto custodians and all but eliminated the possibility of banks entering the space (and both cryptocurrency and cryptocurrency companies he vehemently opposed this). TradFi communities).

The theory is that when President Joseph Biden promised to veto the measure that would repeal SAB121, he paved the way for members of Congress, including such prominent Democrats as Senate Majority Leader Chuck Schumer (D-NY) and Finance Committee Chairman Ron Wyden (D-OR) . – to vote their conscience.

It remains to be seen whether Biden will veto the measure, even though the independent Government Accountability Office (GAO) said the SEC improperly applied the guidance. But the point here is that sane, bipartisan, crypto rulemaking is possible, despite opposition from figures like crypto-skeptic Senator Elizabeth Warren (D-MA).

Speaking of which, Warren may be losing influence in the Biden Administration. Yesterday, Federal Deposit Insurance Corp. Chairman Martin Gruenberg announced that he will resign after Senate Banking Committee Chairman Sherod Brown called for his resignation.

While the move isn’t directly related to crypto, it’s worth noting that Gruenberg is a known confidant of Senator Warren and his perspectives on crypto are largely cut from the same cloth. Under Gruenberg’s leadership, for example, the FDIC took a tough stance against crypto during the financial crisis in 2023 that led to the collapse of three midsize banks.

The FDIC also said Signature Bank’s “relationship with and reliance on crypto industry deposits” was a significant reason for the failure in its report, though it largely cited poor risk management and inept leadership. That same year, the agency officially added cryptocurrency to its annual report on risks facing U.S. banks and began engaging in “robust supervisory discussions” with firms under its purview.

Moreover, Castle Island Ventures co-founder Nic Carter sees Gruenberg as one of the major “architects” of what he calls Operation Choke Point 2.0, or a series of maneuvers by the US government to systematically cripple the crypto industry. a throwback to Obama-era efforts to debank unsavory industries). In fact, following the FTX collapse, the White House released its first crypto-related fact sheet, essentially calling for a crackdown.

See also: The Truth Behind the Crypto Banking Crackdown | Idea

Of course, there are a few important caveats to consider here. After all, Gruenberg resigned under political pressure following a Wall Street Journal report on widespread evidence of sexual harassment at the FDIC. The septuagenarian wasn’t accused of harassment herself, but she allowed a toxic workplace culture to fester — which is why Sen. Brown called for her removal (Sen. Warren called it “politically motivated”).

All of this suggests that crypto is not a motivating factor here, although some political commentators view the Gruenberg situation as a sign of the Warren faction’s waning influence. For example, John Deaton, who is challenging Senator Warren for her senatorial seat this November, said it was “disgraceful” that Warren was “circling cars to keep one of her disgraced puppets in place.”

It is also important to note that Congress is not the White House and the White House is not the SEC. In other words, there’s no real reason to assume the Biden administration is suddenly telling Gary Gensler or lawmakers to calm down on crypto. These are all isolated incidents, but they are all positive developments for crypto.

When it comes to the possibility of ETH ETF approval, there is a suggestion that the SEC is holding out because it does not have productive meetings with potential issuers. As CoinDesk policy expert Jesse Hamilton said, “just because their meetings have become more productive lately doesn’t mean policies are reversing.”

But what if there really is a driving force behind all these developments? What explains the widespread sea change? And why has a Democrat-controlled government now suddenly become pro-crypto?

100 pound gorilla

“The background of all this is an election in which former President Donald Trump, the standard-bearer of the Republican party, openly appealed to crypto voters as part of his strategy,” De said.

Indeed, the former president seems to sense that the crypto union is a political force in pretty good shape and is showering favors. There are a few skeptics who argue that the billionaire real estate developer is motivated primarily by his purses (Trump has released several NFT series and holds significant amounts of ETH and other tokens), but this seems to unnecessarily narrow the view.

The fit makes perfect sense: Crypto attracts people’s attention. And Trump loves attention. Crypto also angers certain types of people, and these are the same people Trump likes to anger. Crypto advocates also like powerful people who are willing to speak positively about crypto. And Trump loves praise.

Passionate crypto advocates like Messari founder Ryan Selkis (a Consensus speaker, by the way) have been saying for years that the industry needs to organize into a coherent political bloc. This has become even more true in recent months. Crypto-focused political action committees (PACs) have more influence than ever in Washington, D.C., and are spending tens of millions of dollars across the country to influence elections up and down the ballot, experts say.

See also: Bitcoin Is Free and Fair but Not Progressive | Idea

And while both sides can arguably claim the “apolitical” crypto narrative for themselves, there’s something to the idea that the industry’s somewhat contradictory state is both rooted in Occupy Wall Street-era populism and is also often associated with “in a funny way.” rich” is undeniably Trumpian. In a way, I’m surprised it took Trump this long to get to this point.

Which brings us to the point: Why now? It is clear that Trump supports crypto because it is a wedge issue that he can use against his rival, President Biden. Although the general public has little clue about the essential bold policies of crypto regulation, a surprising number of registered voters hold crypto and have a positive sentiment towards it. Specifically, approximately 25% of voters who self-identify as independents (i.e., key “undecided voters”) have purchased crypto. And this number will increase over time, especially following the launch of crypto ETFs.

On the other side of the equation, as Trump has positioned himself as an opposition figure to the Biden administration’s slowly simmering war on crypto (which has won the support of at least a handful of voters who disdain his other policies), the easiest way to do this is for Biden to either fix the problem or turn 180 on crypto. It needs to make a gradual evaluation or make the problem less severe.

This is compounded by the fact that while the majority of Americans still do not interact with or have much interest in crypto, there have been a series of missteps by regulators that have earned the industry almost something resembling sympathy. The biggest issue was the SEC’s process for approving bitcoin ETFs, which the appeals court called “arbitrary and capricious.”

But there is a growing perception that the same arrogant and biased view applies to all of the Biden administration’s crypto efforts. Americans want crypto to be safe and well regulated, they want consumer protection; they do not want secret discussions about whether an asset is a security or not.

Moreover, it might be thought politically advantageous to mount a strong response to the sector’s catastrophic failures in 2022, but now with prices climbing again, a heavy-handed approach looks both a waste of government resources and potentially overkill. This says nothing of the fact that provoking the crypto industry always gets backlash from within.

Again, this is all just speculation: There is no direct evidence that Biden is reversing course. It makes sense that significant crypto legislation has gotten to this point, ETH ETFs have been approved, and Trump has won over “single issue” crypto voters. Think of this as a vibration analysis; a theory that may never be proven, but may become even stronger if there are more positive developments like this.

At the end of the day, politics, like cryptocurrencies, is all about vibrations.