Crypto's Sisyphean struggle

Crypto's Sisyphean struggle

Progress will effectively reset when the new Congress is sworn in, because key senators who quarterbacked the bill will not be on the ballot again, writes the Cato Institute's Ryan Chan-Wei.

Sisyphus was condemned by the gods to push a boulder uphill, only to watch it roll back down again and again. After years of pushing for regulatory clarity, crypto appears doomed to a similar fate. The latest attempt—all 635 pages of it—has rolled down the hill once more.

The Senate recently failed to advance the Digital Asset Market Clarity Act, also known as the Clarity Act, and with the midterms around the corner, there is no realistic path to reviving it before the end of the year.

The Clarity Act, as its name suggests, sought to establish a framework for market structure: the rulebook that sorts crypto tokens into legal categories, licenses the firms trading them, and determines how supervisory authority should be divided between the Securities and Exchange Commission and the Commodity Futures Trading Commission.

Ryan Chan-Wei is a research fellow at the Cato Institute's Center for Monetary and Financial Alternatives.

If enacted, the bill would have unlocked crypto's considerable potential, including its ability to expand financial inclusion and reduce the costs of cross-border payments. Realizing any of that at scale takes more than technical ingenuity, because regulated institutions naturally hesitate to commit capital while the rules remain unwritten, and everyday Americans have little reason to trust a market that no one fully oversees.

Congress has long understood the need for a comprehensive regulatory framework. Legislative efforts date back to the Token Taxonomy Act of 2018, and successive attempts across four Congresses have all faltered, though none came as close as the Clarity Act.

Progress will effectively reset when the new Congress is sworn in, because key senators who quarterbacked the bill will not be on the ballot again. Cynthia Lummis (R-WY), who chairs Senate Banking's Subcommittee on Digital Assets, is retiring, and so is Thom Tillis (R-NC), who helped broker the bipartisan compromise on stablecoin rewards that cleared the Clarity Act's path out of committee.

What makes the bill's defeat all the more exasperating is that the hardest part was already done. The fundamental questions concerning market structure had largely been resolved, which explained the uniquely broad coalition that assembled behind the bill. Wall Street and the crypto industry made for unlikely bedfellows, yet firms such as Goldman Sachs and BlackRock also endorsed the Clarity Act.

Full agreement on every detail is rare for legislation of this scope, and a handful of loose ends inevitably remained. But what ultimately held the bill up was ethics, specifically the risk of conflicts of interest at the highest levels of government. The United States gains little from a crypto sector widely perceived as rife with corruption and self-dealing, and safeguarding public trust is crucial.

Even so, it was a mistake to sacrifice the Clarity Act on the altar of ethics, because other legislative avenues for addressing such concerns would have stayed open even if the bill had passed.

Underlying all of this is a question of fairness. Nearly every other part of American finance operates within a defined regulatory perimeter, where firms know which rules bind them and which regulator enforces compliance. Crypto has no such perimeter written into law. Elsewhere, many developed economies—from the European Union and the United Kingdom to Japan and Singapore —have established one. International precedent should not dictate American policy, but it is instructive that so many others have already settled this.

The next Congress must finish what its predecessors did not. For nearly a decade, crypto regulation has been painstakingly pushed up the hill, only to tumble back down again. Sisyphus, at least, had earned his fate. He betrayed the gods and cheated death twice over. Whatever crypto's faults, it does not warrant a sentence like his.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

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