There is growing bipartisan support in Washington for increased federal oversight of crypto markets, but lawmakers and experts remain divided on how best to regulate the energy-intensive sector.
House lawmakers have been introducing bipartisan bills for years to clarify the rules for cryptocurrencies, non-fungible tokens and other blockchain-based assets. That’s because digital assets don’t fit easily into existing regulatory structures that govern securities, commodities and other financial products.
Earlier this month, Senators Kirsten Gillibrand (DN.Y.) and Cynthia Lummis (R-Wyo.) joined the legislative debate with their “Responsible Financial Innovation Act.” The bill, S. 4356, would define cryptocurrencies as a commodity and require annual reports from the Federal Energy Regulatory Commission on the energy consumption of cryptocurrencies.
However, such legislation is unlikely to settle the matter, policymakers suggested yesterday.
“I would like Congress to act to close the regulatory loophole and give the CFTC more authority,” said Christy Goldsmith Romero, a member of the Commodity Futures Trading Commission, at an event organized by the CFTC. Axios. “We have to take steps to reduce the risk that digital assets can present.”
Bitcoin and other digital assets created through proof-of-work processes require enormous amounts of energy, dwarfing the annual energy consumption of some developed countries.
That means cryptocurrencies pose climate risks, which the Biden administration is currently reviewing (climate cableMarch 10th).
But the CFTC commissioner stopped short of endorsing the Gillibrand-Lummis legislation.
Goldsmith Romero noted that Rep. Glenn Thompson of Pennsylvania, the ranking Republican on the House Agriculture Committee, introduced the “Digital Commodity Exchange Act,” HR 7614, earlier this year with Rep. Ro Khanna (D-Calif.), a member of the panel’s Subcommittee on Commodity Exchanges, Energy and Credit.
He also said Sens. Debbie Stabenow (D-Mich.) and John Boozman (R-Ark.), the leaders of the Committee on Agriculture, Nutrition and Forestry, “are about to introduce a similar bill in terms of giving the CFTC more authority. .”
Stabenow’s office confirmed the outlines of Goldsmith Romero’s comments, but declined to provide additional details about the legislation or when it will be released.
“Recent events underscore the need for mandatory federal regulation of the cryptocurrency market,” Stabenow said in a written statement.
“It is critical that the CFTC have the right tools to make this emerging market safe for customers,” added Stabenow, who chairs the Senate Agriculture panel. “My committee has examined the risks and importance of common sense regulations and I am working closely with Ranking Member Boozman on what a responsible regulatory framework would look like.”
Rep. Darren Soto (D-Fla.), one of the co-chairs of the Congressional Blockchain Caucus, also noted in the Axios in case he’s not ready to support the Gillibrand-Lummis bill.
Soto said that he and other lawmakers are skeptical that crypto assets can fit into existing regulatory regimes and that they want more input from federal agencies before moving forward with legislation.
“Right now Congress is in that dialogue. We expect to receive those reports in the next two months. And then we will put pen to paper,” she said. “But to say that the financial definitions of the 20th century are going to define the cryptocurrencies of the 21st century is misplaced.”
Environmental advocates say the energy provisions of the Gillibrand-Lummis bill don’t go far enough and that the FERC’s research topics lack specificity.
“We think there’s a lot more that needs to be looked at with cryptocurrency mining, and we need to start looking at how we can regulate the energy consumption of this industry,” Liz Moran, a policy advocate at Earthjustice in New York, told E&E News. “A report is just a springboard, and part of that is already underway.”
Earthjustice is seeking more reports from regulatory agencies on crypto mining’s use of non-renewable energy and the industry’s reliance on “proof-of-work,” the energy-intensive process for verifying crypto transactions.
Moran expects more legislation to be introduced as interest in the environmental costs of cryptocurrencies grows.
Dan Porter, co-founder of the Satoshi Fund, an advocacy nonprofit focused on Bitcoin mining policy, said he welcomes any legislation that encourages more reporting of Bitcoin power consumption.
“We’re very aggressively in favor of people doing the research,” Porter told E&E News. “And the reason for this is that often when someone does the research and comes to a solid understanding of what Bitcoin is about and what Bitcoin mining is about, they tend to fall on the side of being not just slightly in favor of but extremely in favor of her.”
Porter said most miners are looking for the cheapest power, which often comes from renewables. He said miners and environmentalists have similar goals when they push to make renewable energy more widely available.
The recent drop in the value of cryptocurrencies is likely to slow the growth of the sector in the coming years, according to experts at the Axios recognized board. But if lawmakers can’t agree on a way forward, the CFTC and other regulators could be limited in their ability to police crypto markets.
“Since we don’t have regulatory authority, we really have to trust victims or whistleblowers to come to us,” Goldsmith Romero said.
This story also appears in Heatable.