The eras of crypto legislation

There's a persistent fantasy that Congress might pass a comprehensive cryptocurrency law before the end of the year.

Why it matters: Congress has waited so long to act that, unlike the early days of the internet, the U.S. government is stuck with (pardon the overused policymaking cliché) fixing the airplane engine while flying.

The big picture: Generally everyone in government today is in agreement on one thing: However much existing laws and regulation may apply, the industry has regulatory gaps that need to be filled.

• The history of how to fill them (i.e. cryptocurrency legislating) is still very much unfolding, and as of now can be divided into three eras: Studying, tinkering, and actually trying.

Flashback: In 2017, cryptocurrency broke through to mainstream news for the first time in years, and lawmakers wanted to be seen doing something.

• Sens. Chuck Grassley (R-Iowa) and Dianne Feinstein (D-Calif.) penned legislation (it died) that would have asked Homeland Security to study cryptocurrency at ports of entry, with money laundering by criminals and terrorists on their minds.
• Then-Sen. Rob Portman (R-Ohio) got an amendment into a defense funding bill requiring a study of the cybersecurity applications of blockchain technology.
• And then-Rep. Jared Polis (D-Colo.) and Rep. David Schweikert (R-Ariz.) would get in early on tinkering, trying to get an exemption on capital gains taxes for small expenditures in cryptocurrency.

Tinkering with blockchains

By mid-2018, another crash had set in and most policymakers believed crypto was dead — if they thought about it at all.

• However, there were some legislators who believed something might still come of assets on the internet. They formed a blockchain caucus. They proposed bills, held press conferences and... 🦗🦗🦗.
• For example, Rep. Tom Emmer (R-Minn.) tried to move forward a bill in 2019 that would protect providers of blockchain infrastructure from legal consequences from people using the platforms in ways providers had no control over.

Friction point: A Hill-wide panic set in after Facebook talked about launching Libra and basically taking over value transfer between developing nations. The Keep Big Tech Out of Finance Act and Managed Stablecoins Are Securities Act were two more non-starters designed to stymie the Zuckerberg Empire.

• Anyway! In 2022, more legislators tried to move Polis and Schweikert's capital gains exemption.

Go big, or go home

We have generally entered an era today in which the legislation that comes out is big, comprehensive and takes in a lot of government pieces all at once.

• One bill that attempted to re-tinker some regulatory tinkering by the SEC actually died in the Oval Office. (Getting that far was a win.)
• At the time, President Biden still said he wanted to work with Congress on something bigger.

Also: A truly comprehensive bill made it out of one chamber (sort of).

State of play

Though little has been done, much has changed.

The intrigue: It's hard to believe that back in ancient times (2014), Sen. Joe Manchin (I-W.Va.) wrote a letter calling for Congress to ban cryptocurrencies.

• In an attention getting riposte, the aforementioned Polis penned a satirical letter calling for a ban on the dollar.
• "Printed pieces of paper can fit in a person's pocket and can be given to another person without any government oversight," he wrote at the time. (He is Gov. Polis now.)
• Even Rep. Brad Sherman (D-Calif.) has a hard time believing a ban could happen anymore.

The bottom line: (One more cliché) The cat's out of the bag.