Ben Bain and Robert Schmidt Thu, June 10, 2021
Crypto’s Image Takes Beating in Washington, Dimming Fans’ Hopes
Just a few months ago, crypto enthusiasts were hopeful that Washington was warming to digital assets. But cyberattacks demanding Bitcoin ransoms, wild trading and rebukes from regulators have eroded their optimism.
The timing couldn’t be worse. Policy makers are poised to make a number of critical rulings on virtual tokens in the coming months -- decisions that may reveal how deep of a hole the industry has to climb out of. Potentially under consideration are whether to approve a Bitcoin exchange-traded fund, allow crypto mutual funds and grant banking licenses to financial firms.
For advocates, the setbacks are fueling anxiety that some of their top priorities will be blocked by federal agencies, and that lawmakers will take take a tougher tack on oversight. Evidence is growing that Capitol Hill is moving in that direction. Senator Mark Warner, a Virginia Democrat, said last month that cryptocurrencies are “crying out for some level of regulation.” Senator Elizabeth Warren reiterated that view Wednesday.
“Our regulators, and frankly our Congress, are an hour late and a dollar short,” the Massachusetts Democrat said in a Bloomberg TV interview. “We need to catch up with where these cryptocurrencies are going.”
The rough patch started in May when Securities and Exchange Commission Chairman Gary Gensler urged lawmakers to pass a law regulating crypto exchanges, arguing that the lack of oversight posed a serious threat to U.S. investors. The comments shocked Bitcoin proponents who predicted Gensler would be an ally because, unlike most government officials, he’s well versed in virtual coins.
Fuel Shortages
Then came the Colonial Pipeline Co. hack, which triggered fuel shortages across the Eastern U.S. As in previous breaches, the culprits demanded ransom payments in Bitcoin -- shining a spotlight on cryptocurrencies’ national security implications. Long gas lines predictably attracted the attention of lawmakers and the scrutiny could make some on Wall Street nervous about further embracing assets that are routinely linked to illicit transactions.
The Justice Department recovered most of the tokens that Colonial paid out by tracking transactions on the public ledger for Bitcoin, showing how the technology can aid law enforcement agencies. Still, Warren said a key feature of cryptocurrencies is that they allow people to secretly move money, making the coins a “haven for criminals.” A reminder of her point came Wednesday when JBS USA disclosed that it had paid $11 million to hackers who forced the world’s largest meat producer to shut down all its U.S. beef plants.
Another issue: Bitcoin has lost more than a third of its value since early May. A series of negative tweets from Elon Musk has contributed to the plunge, underscoring to crypto critics that token prices are too volatile and easily influenced by social media to be safe for unsophisticated investors. The frenzy tied to nonfungible tokens and dogecoin -- a cryptocurrency created as a joke -- has amplified those concerns.
“We can’t deny the potential impact that a negative media narrative might have on the regulatory and legislative conversations in D.C. in the short term,” said Kristin Smith, executive director of the Blockchain Association trade group.
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