Crypto in a Kamala regime
Crypto in a Kamala regime
How a Harris administration would be different on crypto
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Connecting the dots behind the Harris campaign’s “reset”
Is Donald Trump the only “pro-crypto” candidate in the election for US president? He’s the only one who has explicitly said so. But now that Joe Biden has stepped aside, there’s reason to think a Harris administration would be more conciliatory toward the industry.
After all, the Biden/Harris administration’s stance on crypto didn’t just fall out of a coconut tree.
It’s easy to forget that in early 2022, few in Washington were thinking about crypto. That’s partly why Joe Biden’s executive order on “ensuring responsible development of digital assets,” published in March of that year, seemed like such a big deal at the time. Today there’s a widespread perception that the administration was nothing but hostile toward crypto. But just over two years ago, President Biden said stuff like this:
The United States has an interest in ensuring that it remains at the forefront of responsible development and design of digital assets and the technology that underpins new forms of payments and capital flows in the international financial system, particularly in setting standards that promote: democratic values; the rule of law; privacy; the protection of consumers, investors, and businesses; and interoperability with digital platforms, legacy architecture, and international payment systems.
Was that…pro-crypto? Perhaps in an alternate timeline, it would have been. In this one, two months after that executive order came out the stablecoin Terra collapsed, wiping out $50 billion. Then in November Sam Bankman-Fried’s crypto exchange FTX, once valued at $32 billion, imploded in a matter of days. Crypto became the center of attention not only in Washington but across America. Even enthusiasts were ashamed. And one influential senator saw a political opportunity.
“FTX’s implosion should be a wakeup call,” Senator Elizabeth Warren wrote in a Wall Street Journal opinion piece entitled “Regulate Crypto or It’ll Take Down the Economy” a few weeks after FTX collapsed. The Massachusetts Democrat compared crypto to the subprime mortgages and credit default swaps that had helped tank the US economy in 2008. “History is littered with financial schemes promoted by criminals and charlatans who claimed the latest and greatest tools had evolved beyond the need for regulation or a cop on the beat,” she wrote.
“Regulators must enforce the law before more people get cheated, and Congress must plug the remaining holes in our regulatory structure—before the next crypto catastrophe takes down our economy,” Warren said. She didn’t explain exactly how that might occur. But the larger point here is that Warren’s notorious “anti-crypto army,” which now seems to have retreated, existed in the context of all in which it lived and what came before it.
Two years later, we know that Congress has not plugged any holes. There are still no rules clarifying what makes a crypto-token a security, like a stock or bond, and when it’s something else, like a commodity. In the absence of new law, the Securities and Exchange Commission (SEC) under chair Gary Gensler, a Warren ally, has taken an aggressive stance toward the industry, suing dozens of companies for issuing or facilitating the buying and selling of crypto-tokens that the agency believes should be regulated like stocks and bonds.
We also know that Biden’s Department of Treasury has been willing to chart new legal ground to keep crypto systems from benefiting America’s geopolitical adversaries. Finally, we know that Warren’s anti-crypto army created a space for politicians to be “pro-crypto”—a position Trump claimed as his own. Late last month, he got a thunderous ovation at a premier Bitcoin conference in Nashville when he promised to fire Gensler.
Trump’s appearance in Nashville was the culmination of a journey that began in May when he told a crowd gathered at Mar-a-Lago for an event promoting his NFT collection: “If you’re in favor of crypto, you better vote for Trump.” The Democrats, he said, “are very much against it.” In July the Trump Campaign made sure the GOP platform contained explicit promises to the crypto industry, again casting its candidate as crypto’s valiant protector. “Republicans will end Democrats’ unlawful and unAmerican Crypto crackdown,” the platform reads.
But the platform was outdated the moment it debuted. Eight days after the May NFT event at Mar-a-Lago, a critical mass of Democrats in the House and Senate had defied Warren and Gensler to support the industry in overturning an SEC accounting policy advocates say made it impossible for banks to maintain custody of clients’ crypto-assets. Six days after that, the House, including 71 Democrats, voted to pass a monumental bill that’s supposed to provide regulatory clarity around crypto markets.
Maybe Trump’s bear hug of the industry spooked some Democrats. Others were surely eyeing the millions of dollars being raised by the pro-crypto PAC Fairshake. And some probably heard from constituents that crypto is important to them. Whatever the reason, by June it was clear that the political winds around crypto were blowing in a very different direction than they were in the wake of the FTX collapse. In DC, it felt like a page had been turned. And that was before Biden dropped out of the race.
“She’s a blank slate”
Kamala Harris hasn’t said anything about crypto yet. “She’s a blank slate,” Kristin Smith, CEO of the DC-based industry group the Blockchain Association told The Information. “That is a huge opportunity for her to have a more pro-innovation posture than the Biden administration.”
Pro-innovation. Here we have an implicit political argument, similar to the one that prominent Silicon Valley tech venture capitalists have used to rationalize their support for Donald Trump: crypto is innovation, thus anti-crypto is anti-innovation.
This is also where a crucial distinction between Trump and Harris on crypto starts to become clear.
What the campaign rhetoric and DC insider news reporting have suggested is that whereas Trump appears willing to give the industry nearly everything it wants, Harris’s team is interested in fostering innovation and business that does minimal harm to consumers, and in proactively managing the real risks associated with crypto.
And let’s be real: crypto has already done lots of harm. Hacks, scams, and frauds galore, many of them taking advantage of what some might call “innovation.” FTX was just the biggest and loudest implosion. Perhaps normies can be forgiven for being confused about what sort of innovation crypto represents. “Cryptocurrency is a volatile asset with no intrinsic value,” the Washington Post editorial board recently wrote. “It is used almost exclusively to speculate or to engage in shady business, such as selling drugs or collecting ransom, for which the anonymous nature of crypto accounts comes in handy.”
It’s also common for tech people, especially in America, to equate “innovation” with technology businesses, and in particular startups. That is, separate from the literal technological innovation that may or may not be occurring, being “pro-innovation” can sometimes really mean being in favor of giving startups wide latitude to pursue novel technical systems and experiment with business models. The case that some tech investors have made is that the Biden administration’s policies have been detrimental to tech startups and thus detrimental to innovation itself.
According to this argument, it should go without saying that the administration has been anti-crypto. But as we’ve already discussed, that assumption seems to selectively forget FTX. Things may have gone differently if not for that catastrophic embarrassment.
That’s what makes recent reporting by the Financial Times that Harris’s advisors have sought to “reset” the Biden-Harris administration’s relationship with the crypto industry so interesting. According to the FT, it’s a longer play than just for November. “People advising the Harris campaign on business matters said the decision to reconnect with the crypto industry had little to do with attracting new electoral contributions,” the report says. “They said the objective was instead to build a constructive relationship that would ultimately set a smart regulatory framework that would help the growth of the entire asset class.”
One signal that a Harris administration might at least be more open-minded to crypto than Biden’s is her campaign’s recent addition of David Plouffe, a former top advisor to Barack Obama. Plouffe has held advisory roles for the crypto exchange Binance as well as a Singapore-based crypto payment company called Alchemy Pay.
If the Harris campaign really wants a reset, perhaps it should signal intent to name a new SEC chairman. The relationship between the crypto industry and Gensler is almost purely adversarial at this point.
The Wall Street Journal reported recently that according to unnamed “current and former officials,” Biden appointees including national security adviser Jake Sullivan, Secretary of State Antony Blinken, and Defense Secretary Lloyd Austin “wouldn’t likely be extended in their current roles.” The same thing could happen to Gensler, VC firm Paradigm’s head of policy Justin Slaughter suggested recently on the Unchained podcast. “Kamala Harris could say I want someone new at the SEC, I want someone to come in who has fresh ideas so we have fresh insights.”
As a norm, executive branch agency heads resign their posts when a new administration arrives. So if Trump wins in November, he probably won’t need to fire Gensler. What if Harris wins? The vice president replacing the incumbent president as the party nominee this late in the game is unprecedented. Either way, the SEC chair serves “at the pleasure of the president,” Slaughter explained. Gensler’s term doesn’t end until 2026. Harris could name one of the other four commissioners the chair, making Gensler a commissioner, a position that wields much less power.
Then there’s Elizabeth Warren. One of the “worst kept secrets in Washington” is that Warren “calls a lot of the shots on economic policy in the Biden administration,” Sheila Warren, CEO of the industry group Crypto Council for Innovation (CCI), said during the same episode of Unchained. That would not be the case for a Harris Administration, CCI’s Warren said. Elizabeth Warren and Biden are close allies. Now that Harris is at the top of the ticket, the senator from Massachusetts’s power is waning, CCI’s Warren said.
“Pro-business, responsible business”
Insider politics aside, the Harris campaign seems determined to deflate the notion that her administration would be anti-business. According to the FT: “The underlying message Harris wants to strike is that the Democrats are ‘pro-business, responsible business,’ said one person close to her campaign.”
Responsible. That word also appeared prominently in the March 2022 Biden executive order on crypto: “The United States has an interest in ensuring that it remains at the forefront of responsible development and design of digital assets…” The word, notably absent from the Trump campaign’s pro-crypto language in the GOP Platform, was a clear reference to billions of dollars worth of fraud, scams, and other consumer harms that occurred before the catastrophe of FTX.
Still, “responsible” is vague. How to define it in the context of novel cryptographic privacy systems like Tornado Cash seems like mostly if not totally a philosophical argument. As we’ve pointed out before, Trump has said nothing about Tornado Cash or other advanced cryptographic systems that rely on decentralized networks. Neither has Harris, of course. But another one of the advisors she’s added to her campaign, Treasury Department Undersecretary Brian Nelson, may hint at her thinking.
Nelson has a reputation among crypto advocates in Washington as being open-minded and thoughtful about crypto even though part of his job at Treasury was preventing illicit actors from using it. In May, he even spoke at Consensus, one of crypto’s oldest and largest conferences. (He said a lot of things on stage and you should read them all if you’re interested.)
Nelson called tools like Tornado Cash “extremely attractive to illicit actors,” adding: “This creates a significant national security challenge for us.” As for the path forward, he said something confusing: “We believe there is a difference between sort of obfuscation and anonymity enhancing services and those that support privacy.” He did not clarify what he meant in practice despite the interviewer, CoinDesk’s Nik De, requesting that he do so.
For what it’s worth, Elizabeth Warren seems happy that Nelson is on the Harris team. “It’s always good to have someone advising leaders about threats to national security that come from holes in our anti-money-laundering rules,” she told Politico earlier this month.
Ultimately, there are a lot of dots here that seem safe to connect. Harris is likely to position herself as unburdened by what the Biden administration has been, in a way that appeals to entrepreneurs and investors. Warren, the source of much of the business community’s (and crypto community’s) disdain for the Biden administration, would have a lot less power in a Harris administration. It seems plausible that both of those changes would benefit the crypto industry. Would Harris be as “friendly” as Trump? Something about the word “responsible” suggests not. But as long as she keeps leading Trump by being mostly a blank slate, all we can do is read between the lines. —Mike Orcutt
ODDS/ENDS
A group of pro-crypto Democrats—14 sitting members of the House and 14 candidates for congressional office—sent a letter to the Democratic National Committee asking it to add language to the party platform that is supportive of the industry. “Crypto is at the top of voters’ minds in swing states, and a balanced approach to crypto that spurs innovation while protecting consumers is a net positive for policymakers and candidates,” the letter reads.
Prominent crypto critic Molly White and Coinbase’s legal team are beefing over White’s accusation that Coinbase’s $25 million donation to the crypto PAC Fairshake is a violation of federal campaign finance law. There is plenty of detail on White’s site, including links to the complaint filed with the Federal Election Commission. But the gist is that Coinbase got a contract with the US Marshals Service right around the time the company made its chunky donation to Fairshake. Now White’s camp (which includes the advocacy group Public Citizen) is deep into an argument with Coinbase over what constitutes a “contractor”—and whether or not the seized cryptocurrency that the Marshals are using to pay Coinbase counts as “Congressional appropriations” or not. So, so crypto.
Donald Trump raised more than $20 million in campaign contributions at a massive Bitcoin conference in Nashville late last month. The campaign held a fundraiser after his speech that cost $844,600 per person and offered a photo with Trump for another $60,000, according to The Block.
Blockchain-based restaurant loyalty app Blackbird launched Blackbird Pay, which will let restaurants accept in-app cryptocurrency payments. Users will be able to pay for meals using $FLY, the app’s cryptocurrency, which can be earned via loyalty programs that participating restaurants devise. $FLY can also be purchased inside the app, using the USDC stablecoin. According to a new whitepaper, the token’s home is a “layer 3” blockchain built on top of Base, the layer 2 chain developed by Coinbase. When we figure out what a layer 3 chain is we’ll let you know. (In the meantime, if you want to learn more about Blackbird, check this out.)
Sports betting platform DraftKings is shutting down a game and marketplace that featured NFTs “due to recent legal developments.” The platform is dealing with multiple class action lawsuits alleging that its NFT sales were illegal securities transactions.
The US Senate passed a bipartisan bill aimed at “online safety” for kids. “The centerpiece of the legislation would create a ‘duty of care’ for social networking platforms that mandates they protect minors against mental health disorders and from abuse, sexual exploitation and other harms,” according to the New York Times. Although the Senate voted 91-3 to pass the measure, it faces an uncertain future now that it moves to the House, thanks in part to what the NYT calls “a fierce lobbying effort by technology companies… and a deep skepticism among free speech advocates who argue that it would chill individual expression and potentially harm some of those whom the bill aims to protect.”
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