The collapse of the crypto industry – punctuated by the bankruptcy of one of the most important companies in the industry – has not shaken Minnesota Congressman Tom Emmer’s confidence in digital currencies private.
“I still think for digital assets in general, they are the future, and the future has arrived,” said Delano’s Republican, one of Congress’s biggest crypto boosters and now the third Republican in bedroom.
But the collapse of FTX Trading has sparked new tensions in Congress and Washington over how to handle the industry – without a clear agreement on a solution.
During an interview with the Star Tribune, Emmer focused on the role of Congress in overseeing regulators, rather than passing legislation to regulate crypto.
“Congress needs to start doing its job of making sure, through our oversight function, that we’re making sure our regulators are doing the job,” he said.
Emmer has been highly critical of the handling of the crypto industry by the United States Securities and Exchange Commission, claiming the agency has been ineffective and opaque — and demanding that its chairman, Gary Gensler, appear before Congress.
Clashes on Capitol Hill seem more likely than sweeping legislation to address the many regulatory uncertainties surrounding cryptocurrency. No matter what happens in Congress, Emmer will likely have his say.
And after four years leading the campaign arm of the House GOP, Emmer’s new leadership position as House majority whip gives the Minnesotan a lot more visibility on the legislation. Rep. Patrick McHenry, R.C., an Emmer ally, leads the House Financial Services Panel on which Emmer sits. again this year.
Cryptographic computation is complicated by harsh political realities. Republicans narrowly hold the US House while Democrats lead the US Senate and control the White House. And the inherently complex nature of cryptocurrency presents its own challenges if Congress decides to take a look.
“There aren’t many members of Congress who have the expertise or understanding of crypto markets and these dynamics to do this effectively, which makes them very susceptible to outside lobbyists,” he said. Rep. Dean Phillips, D-Minn.
Cryptocurrency is digital money that is created on a decentralized computer network. As the value of crypto has grown, industry players have grown larger and strengthened their lobbying efforts and campaign contributions.
The implosion of FTX, one of the largest crypto exchanges, has raised particularly sensitive questions for Congress. Co-founder Samuel Bankman-Fried and others within the FTX empire gave large political donations before the collapse.
A young but growing industry
Cryptocurrency speculators have struck — and lost — fortunes. But its use in daily trading is still limited.
For its proponents, cryptocurrency protects investors’ wealth through a decentralized financial system, without the intervention of central banks and commercial banks.
At the base is the “blockchain”, a digital technology intended to ensure both the security and the anonymity of transactions.
For skeptics, cryptocurrency is a financial vehicle for cybercriminals and, at worst, akin to a Ponzi scheme. Additionally, they note that the industry consumes huge amounts of electricity to power its computerized minting.
One thing is certain: as a new financial asset, cryptocurrency has raised a host of questions about how it should be regulated.
Congress began to pay more attention in recent years as the market value of cryptocurrency reached $3 trillion and a small investors jumped in, getting burned with hedge funds when crypto prices crashed last year. A slew of crypto companies began filing for bankruptcy last summer, culminating in November with FTX.
FTX lacked even rudimentary internal controls and accounting; its clients have lost billions of dollars, while Bankman-Fried faces federal charges of fraud and money laundering.
Crypto legislation in Congress could be a tough sell after FTX’s collapse. Last year, bipartisan bills that established a regulatory framework — but ultimately failed to pass — were widely supported by the crypto industry.
Hilary Allen, a professor of financial regulation at American University School of Law in Washington, D.C., and a crypto-skeptic, said she thinks this year it’s “much less likely that Democrats will accept favorable legislation.” to cryptography”.
More likely than legislation, she said, “there is a confrontation in the [House] Financial Services Committee on the SEC being more aggressive.”
Last month, Emmer tweeted that Gensler “must testify before Congress and answer questions about the costs of his regulatory failures.”
The regulatory debate intensifies
Emmer has long been critical of the SEC’s regulation of the crypto industry. FTX’s failure gave him more ammo.
“We have Gary Gensler running the SEC who has the tools to protect investors in cases like this [FTX] and they choose not to exercise them,” Emmer told the Star Tribune. “Gary Gensler’s regulatory strategy has been totally ineffective.
The SEC, which declined to comment, has been lambasted on many fronts since FTX’s collapse.
Still, while Allen said the SEC could have been more aggressive, it has been “one of the toughest crypto regulators.”
“Many regulators and legislators have wholeheartedly accepted the crypto industry’s claims of innovation, efficiency, and financial inclusion,” she said. “The SEC under Gensler didn’t just accept these claims at face value — it prioritized protecting investors.”
Much to the disapproval of the crypto industry, Gensler has made it clear that he views cryptocurrencies as securities, with the exception of Bitcoin. According to the agency’s website, a dedicated crypto arm of the SEC has filed more than 90 lawsuits against crypto firms for alleged violations.
In March 2022, a bipartisan group of eight House members — including Emmer — wrote a letter to Gensler questioning an SEC investigation into cryptocurrency and blockchain companies, specifically the information requested by the agency.
House members said the SEC’s solicitations could violate the Red Tape Reduction Act, which regulates how federal agencies collect information from the public.
Emmer, who was asked if the letter contradicted his criticism of the SEC as weak, said his position “is completely consistent.”
Gensler chose an “opaque” method of regulation, Emmer said. That includes “some industry participants coming into his office and negotiating regulatory benefits rather than relying on the open rule-making process,” he said, referring to the meetings. de Gensler with Bankman-Fried and other FTX executives in October 2021 and March 2022.
Gensler, when asked about the March meeting with Bankman-Fried in an interview with Yahoo Finance, said the SEC typically meets with “market participants” and the “basic message” is to “get compliant.”
Gensler is not alone among regulators to have met with executives from Bankman-Fried and FTX.
Rostin Behnam, head of the U.S. Commodity Futures Trading Commission, told a Senate committee in December that he and other CFTC officials had met with Bankman-Fried 10 times in 14 months about LedgerX, a subsidiary still creditworthy of crypto derivatives of FTX.
The CFTC has some regulatory authority over crypto. Emmer did not criticize Behnam’s meetings with Bankman-Fried, saying “the head of the CFTC was not negotiating regulatory benefits for FTX.”
A complicated Congress
Emmer’s stance on crypto has put him at odds with some Democrats.
“Republicans in the House seem poised to try to blame Biden’s administrative departments for their lax oversight. But it’s funny to me when they also, on the other hand, pleaded for a very, very light on regulation before FTX’s decline,” Sen. Tina Smith, D-Minn., said.
Prior to FTX’s collapse, some of Smith’s Democratic colleagues joined Republicans in supporting legislation that critics described as a soft approach to regulation.
The crypto industry has given campaign money to both parties. While Bankman-Fried was a prolific Democratic donor, he also donated to the GOP, including the Republican National Congressional Committee (NRCC) chaired by Emmer.
Minnesota Democratic Rep. Angie Craig’s campaign has received money from Bankman-Fried and FTX engineering director Nishad Singh, which a spokeswoman says will go to a bankruptcy fund .
Smith’s spokesperson said donations the Democrat received from Bankman-Fried and Singh went through, while a separate contribution from another prominent FTX figure was set aside in case she was recovered.
Emmer did not receive a donation from Bankman-Fried, but his campaign did get money from two other people involved in the FTX empire, including Ryan Salame, co-CEO of FTX Digital Markets. Salame was a major Republican donor who also gave money at NRC.
Emmer’s campaign has not commented on the FTX donations. Republican Representative Brad Finstad also received campaign money from Salame, but a deposit shows his campaign returned the donation in late November after FTX collapsed.
Emmer’s campaign and another branch of his political operation also received thousands of dollars from a head of the crypto lobbying group Blockchain Association, according to federal records. His campaign has also received donations from corporate figures with large investments in crypto: Digital Currency Group, Andreessen Horowitz and Blockchain Capital.
“I was a firm believer in crypto technology long before it became mainstream,” Emmer said in a statement to the Star Tribune. “This issue is far too important to me to let any perception of self-interest get in the way, which is why I decided years ago not to buy crypto.”
For Emmer, crypto is a cause. In a recent Tweeterhe said that “crypto is more than a financial investment: it’s about giving freedom and choice back to individuals.”