The collapse of the crypto industry – punctuated by the bankruptcy of one of the industry’s most prominent companies – has not shaken Minnesota Congressman Tom Emmer’s faith in private digital currencies.
“I still think digital assets in general are the future, and the future has arrived,” said Republican Delano, one of the biggest crypto boosters in Congress and now the third-ranking Republican in the House of Representatives.
But the collapse of FTX Trading has sparked new tensions in Congress and Washington over how to deal with the industry — with no clear agreement on a solution.
During an interview with the Star Tribune, Emmer focused on Congress’ role in overseeing regulators rather than enacting legislation to regulate crypto.
“Congress needs to start doing its job to make sure through our oversight function that our regulators are doing the job,” he said.
Emmer was very critical of the US Securities and Exchange Commission’s treatment of the crypto industry, saying the agency was ineffective and opaque — and demanding that its chairman, Gary Gensler, appear before Congress.
Clashes on Capitol Hill seem more likely than passing comprehensive legislation to address the many regulatory uncertainties surrounding cryptocurrency. Whatever plays out in Congress, Emmer will likely have a strong say.
And after four years leading the House Republican Party’s campaign arm, Emmer’s new leadership position as House Majority Leader gives the Minnesotan far greater legislative visibility. Rep. Patrick McHenry, RN.C., an ally of Emmer’s, chairs the House Financial Services panel, where Emmer is serving again this year.
Cryptocurrency is complicated by harsh political realities. Republicans hold a tight hold on the House of Representatives, while Democrats run the Senate and control the White House. And the inherently complex nature of cryptocurrency presents its own challenges if Congress chooses to take a close look.
“There aren’t many members of Congress who have the expertise or understanding of the crypto market and those dynamics to do that effectively, which makes them very vulnerable to outside lobbyists,” said Rep. Dean Phillips, D-Minn.
Cryptocurrency is digital money, i.e created on a decentralized computer network. As the value of cryptocurrency has grown, industry players have grown larger and stepped up their lobbying efforts and campaign contributions.
The collapse of FTX, one of the largest crypto exchanges, has raised particularly tricky questions for Congress. Co-founder Samuel Bankman-Fried and others within the FTX empire made hefty political donations before the collapse.
Young industry, but growing
Cryptocurrency speculators have made — and lost — fortunes. But its use in everyday trade 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 its core is “blockchain”, a digital technology that should ensure the security and anonymity of transactions.
For skeptics, cryptocurrency is a financial medium for cybercriminals, and at worst it is similar to a Ponzi scheme. In addition, they note that the industry consumes enormous amounts of electricity to power its computerized coinage.
One thing is certain: as a new financial asset, cryptocurrency has raised many questions about how it should be regulated.
Congress has begun to pay more attention in recent years as the market value of cryptocurrency has grown to $3 trillion and a little investors jumped in, got burned along with hedge funds when cryptocurrency prices fell last year. A slew of crypto companies began filing for bankruptcy last summer, culminating in November with FTX.
FTX lacked even rudimentary internal corporate controls and accounting; his clients 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 the FTX collapse. Last year, bipartisan bills that established a regulatory framework—but ultimately failed to pass—were largely supported by the crypto industry.
Hilary Allen, a professor of financial regulation at American University School of Law in Washington, DC, and a crypto skeptic, said she thinks Democrats are “much less likely to agree to crypto-friendly legislation this year.”
More likely than the law, she said, “is the reckoning in [House] Financial Services Board because the SEC was more aggressive.”
Last month, Emmer tweeted that Gensler “must testify before Congress and answer questions about the cost of his regulatory failures.”
The regulation debate is growing
Emmer has long been a critic of the SEC’s regulation of the crypto industry. FTX’s failure gave him more ammunition.
“We have Gary Gensler running the SEC who has the tools to protect investors in cases like this [FTX] and they choose not to apply them,” Emmer told the Star Tribune. “Gary Gensler’s regulatory strategy has been completely ineffective.”
The SEC, which declined to comment, has been criticized on many fronts since the FTX collapse.
Still, while Allen said the SEC could have been more aggressive, it was “one of the strictest crypto regulators.”
“Many regulators and lawmakers have uncritically accepted the crypto industry’s claims of innovation, efficiency and financial inclusion,” she said. “The SEC under Gensler didn’t just take those claims at face value — it prioritized protecting investors.”
Much to the dismay of the crypto industry, Gensler made it clear that he sees cryptocurrencies as securities, with the exception of Bitcoin. The SEC’s cryptocurrency arm has filed more than 90 lawsuits against crypto companies for alleged wrongdoing, according to the agency’s website.
In March 2022, a bipartisan group of eight members of the House of Representatives — including Emmer — wrote a letter to Gensler questioning the SEC’s investigation into cryptocurrency and blockchain companies, specifically the information the agency was seeking.
House members said the SEC’s requests could violate the Paperwork Reduction Act, which regulates how federal agencies collect information from the public.
Emmer, asked if the letter contradicted his criticism of the SEC as weak, said his position was “completely consistent.”
Gensler chose an “opaque” method of regulation, Emmer said. That includes “certain industry participants coming into his office and negotiating regulatory benefits rather than relying on an open rulemaking process,” he said, referring to Gensler’s meetings with Bankman-Fried and other FTX executives in October 2021 and March 2022
Gensler, asked about the March meeting with Bankman-Fried in an interview with Yahoo Finance, said that the SEC generally meets with “market participants” and that the “underlying message” is to “align.”
Gensler is not alone among regulators who have met with Bankman-Fried and FTX executives.
Rostin Behnam, head of the U.S. Commodity Futures Trading Commission, told a Senate committee in December that he and other CFTC representatives met with Bankman-Fried 10 times over 14 months about LedgerX, the still-solvent subsidiary of FTX for crypto derivatives.
The CFTC has some regulatory authority over crypto. Emmer did not criticize Behnam’s meetings with Bankman-Fried, saying that “the CFTC chief did not negotiate regulatory benefits for FTX.”
A complicated congress
Emmer’s stance on cryptocurrency has put him at odds with some Democrats.
“House Republicans seem willing to blame departments of the Biden administration for lax oversight. But I find it funny when, on the other hand, they were also pushing for a very, very light touch on regulation before the FTX crash,” Sen. Tina Smith, D-Minn., said.
Before FTX’s demise, some of Smith’s Democratic colleagues joined Republicans in supporting the bill, which critics described as a soft approach to regulation.
The crypto industry has given campaign money to both sides. Although Bankman-Fried was a prolific Democratic donor, he also donated to the GOP, including the National Republican Congressional Committee (NRCC), which Emmer chaired.
Minnesota Democratic Rep. Angie Craig’s campaign received money from Bankman-Fried and FTX director of engineering Nishad Singh, which a spokeswoman confirmed will be given to the bankruptcy fund.
Smith’s spokesman said the donations the Democrat received from Bankman-Fried and Singh were donated, while a separate contribution from another prominent FTX figure was set aside in case it was returned.
Emmer did not receive a donation from Bankman-Fried, but his campaign received money from two others involved in the FTX empire, including Ryan Salame, co-CEO of FTX Digital Markets. Salame was a significant Republican donor who also gave money to the NRCC.
Emmer’s campaign did not comment on the FTX donations. Republican Rep. Brad Finstad also received campaign money from Salame, but filings show his campaign returned the donation in late November after FTX collapsed.
Emmer’s campaign and another arm of his political operation also received thousands of dollars from the leader of the crypto lobbying group Blockchain Association, according to federal records. His campaign also received donations from prominent people at companies with significant crypto investments: Digital Currency Group, Andreessen Horowitz and Blockchain Capital.
“I’m a firm believer in crypto technology long before it became mainstream,” Emmer said in a statement to the Star Tribune. “This issue is too important to me to let any perception of self-interest get in the way, which is why I decided not to buy crypto years ago.”
For Emmer, crypto is the cause. In a recent twittersaid that “crypto is more than a financial investment: it’s about returning freedom and choice to individuals.”