What happened in Congress in 2023: Mid-session update

22.12.2023

2023 may be coming to a close, but this session of Congress is only halfway through.

Here is the progress lawmakers have made on crypto legislation over the past 12 months and what we should keep an eye out for in 2024.

Sens. Lummis and Gillibrand reintroduce their Responsible Financial Innovation Act

After months of delays, Sens. Cynthia Lummis, R-Wyom., and Kristen Gillibrand, D-N.Y., finally brought their revamped Responsible Financial Innovation Act to the Senate floor once again in July.

The new version of the bill is “landmark legislation to create a federal regulatory framework that allows crypto businesses and investors to prosper here in America while protecting consumers from bad actors,” Lummis said at the time.

Read more: Lummis, Gillibrand bring new bill to the table hoping for a different outcome

The first iteration of the bill made its Senate debut over a year ago. The bill never reached the markup stage, but supporters praised the effort as a first-of-its kind attempt at a broad bipartisan crypto policy proposal.

The bipartisan senators will need some key committee support, ideally from Senate Banking Committee Chairman Sherrod Brown, D-Ohio, if they want the legislation to ever make it to the floor.

Blockworks spoke with Lummis and Gillibrand earlier this month. At that time, the pair said conversations with their colleagues have been productive, and new changes to their bill are leading to encouraging conversations. A timeline on when, or if, we might see the legislation headed for markup is still up in the air.

Rep. Emmer tries to block a retail CBDC

Tom Emmer, the House majority whip from Minnesota, reintroduced in September his Central Bank Digital Currency Anti-Surveillance State Act alongside 49 of his fellow Republicans. The legislation first made the rounds in February.

The legislation aims to block the Federal Reserve from directly offering a CBDC to individuals and using it to implement monetary policy.

“Any digital version of the dollar must uphold our American values of privacy, individual sovereignty and free market competitiveness,” Emmer said in a statement in February. “Anything less opens the door to the development of a dangerous surveillance tool.”

The updated bill, with amendments, passed the House Financial Services Committee in September. It has not been scheduled for a full House floor vote.

House Republicans debut their market structure bill

The Financial Innovation and Technology for the 21st Century Act — establishes joint rulemaking powers between the US Securities and Exchange Commission and the CFTC. Notably, the bill grants the latter control over digital commodities markets, including exchanges and broker-dealers.

The legislation also clarifies how digital assets are classified, stating that the existence of an investment contract alone does not make a token a security. About 70% of all crypto tokens should be classified as commodities rather than securities, the co-sponsors wrote in a fact sheet published alongside the bill.

Co-sponsors include House Agriculture Committee Chair Glenn Thompson, R-Pa., Rep. French Hill, R-Ark., and Rep. Dusty Johnson, R-S.D. Hill leads the inaugural Subcommittee on Digital Assets, Financial Technology and Inclusion, and Johnson leads the Subcommittee on Commodity Markets, Digital Assets, and Rural Development.

The legislation advanced in both the House Agriculture and Financial Services Committees in July. It has not yet been scheduled for a full floor vote.

More bipartisan efforts in the Senate

Also in July, Sen. Jack Reed, D-R.I., introduced the Crypto Asset National Security Enhancement Act of 2023 alongside Sens. Mark Warner, D-Va., Mike Rounds, R-S.D., and Mitt Romney, R-Utah.

Reed’s bill would require anyone who “controls” a DeFi protocol to ensure there are anti-money laundering programs in effect and adhere to know-your-customer (KYC) policies. DeFi protocol controllers would also be responsible for reporting suspicious activity and make sure anyone blocked by sanctions is not using the protocol.

The Senate Banking Committee held a hearing on the legislation in October, although no markups or votes have been scheduled yet.

House Financial Services Committee greenlights stablecoin bill

The House Financial Services Committee also passed the Clarity for Payment Stablecoins Act, introduced by Patrick McHenry, R-N.C., in July with bipartisan support, a move fans were hopeful would move stablecoin legislation along.

The bill gives more power to state legislators by allowing them to license payment stablecoin issuers. The legislation does include some federal policies, including requiring the Federal Reserve to have input in issuing requirements.

Read more: McHenry signals support for Grayscale ruling

McHenry earlier this month announced that he would not be running for reelection at the close of this Congressional session, so his time to advance his proposal is further limited.

“His bipartisan approach to commonsense rules that improve the status quo and ensure that this technology develops on American soil is a prudent model for Congress as it considers future crypto-specific legislation,” Kristin Smith, CEO of the Blockchain Association, said in a statement. “While we’re sad to see such an industry champion leave the House, we’re pleased to be able to work closely with the Congressman for another 13 months.”

Lawmakers were busy writing letters

Lots of letters from Capitol Hill landed on US agencies’ desks this year as lawmakers and regulators continue to spar over how to address the growing crypto industry and its potential role in terrorist financing.

More than 100 US lawmakers, including Senator Elizabeth Warren, penned a letter in October to both the National Security Advisor Jake Sullivan and the Under Secretary for Terrorism and Financial Intelligence at the Treasury, Brian Nelson, concerning reports that the militant group Hamas raised money through crypto.

The letter cites an article from the Wall Street Journalwhich speculated that Hamas used crypto as a way to fund its recent attacks on Israel.

Read more: ‘No evidence’ Hamas raised millions in crypto, Elliptic says

“That the deadly attack by Hamas on Israeli civilians comes as the group has become ‘one of the most sophisticated crypto users in the terror-finance domain’ clarifies the national security threat crypto poses to the US, and our allies,” the politicians wrote.

57 bipartisan members of Congress sent to President Joe Biden and Treasury Secretary Janet Yellen a letter in November asking for more information on how Hamas is funded and the role of crypto in financing their operations.

“As Congress seeks to eliminate the pathways for terrorist financing to protect both our interests at home and abroad and those of our allies, we need greater context around Hamas’ operations,” lawmakers wrote in the letter. “This is particularly critical given the conflicting reports we have on Hamas’s fundraising campaign from blockchain analytics firms.”

Guidance to Congress sent from Treasury on expanding International Emergency Powers Act

Agencies are sending letters to the Hill, too.

The Treasury Department sent a legislative proposal to Congress in November asking for additional authority to oversee the crypto space, including allowing it to step outside of the United States.

Read more: Treasury’s Wally Adeyemo: My agency needs more power to regulate crypto

Treasury officials have asked Congress to expand the International Emergency Powers Act to explicitly allow the agency to “designate blockchain nodes or other elements of cryptocurrency transactions,” according to a copy of the proposal obtained by Blockworks.

Some industry members argue that given the Treasury’s apparent success thus far in sanctioning exchanges, mixing services and other actors, granting the agency greater authority is unnecessary.

“The thing that I learned most from being at the Treasury during the financial crisis is that innovation outpaced regulation,” US Treasury Deputy Secretary Wally Adeyemo said on the proposal. “Our goal is to make sure that we have the flexibility.”