The political imperative for an expansive crypto bill has arrived

Last Tuesday was one of those days in the news business that you'll remember forever and tell your grandkids about — unless you're a financial reporter, in which case you just have to assume your grandkids sincerely won't care. 

It was Election Day, and the conventional wisdom was that Republicans were going to take back the House and very possibly the Senate, fundamentally changing the policy trajectory for the Biden administration, the political dynamics in Washington, and the landscape of the 2024 presidential election. And coincidentally, cryptocurrency exchange FTX — helmed by founder Sam Bankman-Fried, a serious man about Washington — was apparently in talks to be bought by rival crypto exchange Binance.

Fast forward to a week later, and not only are those developments not what they first appeared to be, but they are and will likely continue to be intertwined into the foreseeable future. The Republican Party, as of this writing, has not secured control of the House of Representatives, though they are likely to wring out enough seats to hold a majority that is just as narrow — or narrower — than the current Democratic majority. 

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And, as we all learned over the weekend, Republicans have already lost party control of the Senate. That is the more consequential of the two chambers for one reason — presidential appointments to executive and judicial offices run through the Senate, but not the House. The White House apparently got the memo and used the opportunity to nominate acting Federal Deposit Insurance Corp. Chairman Martin Gruenberg to another tour as Senate-confirmed FDIC chair.

Funny, that. Gruenberg has worked at the FDIC longer than any other board member — he was first appointed to the FDIC board in 2005, and he's been there ever since. He chaired the FDIC board as a Senate-confirmed nominee in the Obama years, and served as acting chair from November 2005 to June 2006, again from July 2011 to November 2012, and once again between when his term expired in November 2017 and Jelena McWilliams was sworn in as chair in June 2018, and of course from February 2022 until the present.

Gruenberg is a survivor, and he evidently wants to remain at the FDIC. So why is the administration obliging him — perhaps not coincidentally a day before he is slated to testify before the Senate Banking Committee? Showing up to testify before Congress with the explicit backing of the current administration is a very different experience than showing up without it. I suspect Gruenberg demanded it, and he got it.

Emergency FTX buyout shows 'necessity of congressional action,' McHenry says

Part of the reason the administration may have ultimately thought it handy to keep Gruenberg around is because he has carved out something of a profile as a crypto skeptic — and this is where FTX comes in. In January of this year, FTX was valued at $32 billion. Today vultures are picking at the company's bones, and criminal investigations may be forthcoming. That's an incredible reversal of fortune for a titan of the budding crypto industry — and as a leading voice in Washington's slow but inevitable efforts to establish regulatory guardrails for crypto. Bankman-Fried made Congress look stupid, and I don't think they will forget that.

Up to this point, the bipartisan legislative action has been limited to the issuance of stablecoins — the portals that facilitate the transformation of real money into crypto and back again. Congress's urgency in working together to nail that down was in many ways informed by the collapse of the Celsius and TerraUSD stablecoins earlier this year. The swift demise of FTX is decidedly bigger, more interconnected with the financial system and more consequential than those other failures, and Congress will have to adjust the aperture of its response accordingly — especially if there are more FTX-like failures yet to come. 

All of this is to say that legislation to fill the regulatory vacuum in which crypto currently exists has simultaneously become more expansive and less optional than it was a week ago, and by necessity Republicans are going to have to take some ownership of the final product. This is not Dodd-Frank, where Republicans can stay on the sidelines and throw stones — Rep. Patrick McHenry, R-N.C., the presumed chair of the House Financial Services Committee should Republicans take the House, seemed to realize this when he declined to bash the bipartisan stablecoin bill ahead of the election. 

I don't expect this to be the Kumbaya Congress that finally puts aside its differences and focuses on doing the important work of the American people — though I think it would be strategically smart for them to do so. But I do think that this very massive and very public evaporation of trillions of dollars of value — dollars held by regular voters — means the public will demand Congress do something to ensure it doesn't happen again. "I told you so" and "buyer beware" aren't going to cut it this time.