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  • L Higgins and M Bacina

Capitol Hill dances between innovation and regulation in crypto clash

In a dynamic week on Capitol Hill, the cryptocurrency industry has watched competing approaches with the US House of Representatives endorsing a pro-blockchain bill and a bipartisan group of senators proposing measures to allegedly curb terror financing through crypto transactions.

In a unanimous vote, the House Committee on Energy and Commerce has given the nod to the Deploying American Blockchains Act, a 13-page legislative instrument aiming to propel the United States into a better position regarding blockchain technology. While not among the headline-making bills, it signifies another positive stride in Congress's attitude towards the blockchain industry.

The legislation directs the US Secretary of Commerce to champion the competitiveness of the US in the deployment, use, and application of blockchain and other distributed ledger technology. Ron Hammond, the Blockchain Association's Director of Government Relations, emphasised the non-partisan support for the bill within the committee in an interview with CoinDesk, highlighting its potential to either be combined with other legislative efforts or lead to agency action at the Department of Commerce:

...[The House Committee on] Energy and Commerce is unanimously in support, and there's nothing partisan about it.
[T]hese bills have either gotten looped together into larger bills or lead to agency action at [the Committee], which has been very open to conversation.

However, life will not be easy for this bill as it will face an uphill battle in the US Senate, where the cautious approach of the Democrat-controlled Senate towards digital asset bills presents a significant hurdle. It may be the case that merging these bills with broader, "must pass" legislation might be the key to navigating the Senate's undulating landscape.

Simultaneously, a bipartisan group of senators, led by Mitt Romney, has introduced the Terrorist Financing Prevention Act of 2023. This legislation expands existing sanctions to foreign entities supporting all groups designated as terrorists by the US, including those leveraging crypto transactions. The proposed act seeks to equip law enforcement with additional tools to counter terrorism financing, purporting to address the continued overemphasised role that digital assets play in the battle against global money laundering and terrorism financing.

Romney, emphasising the urgency following the October 7 attacks on Israel by Hamas, stated that the legislation aims to cover all terrorist organizations, including Hamas. The bill broadens existing sanctions, originally focused on Hezbollah, to include all US-designated foreign terrorist organisations and their supporting entities.

The use of crypto in financing terrorism has long been a stated concern for regulators and law enforcement, despite there being very limited data on the extent to which it is occuring. Recent debates among Republican presidential candidates have continually framed digital assets as tools for "fraudsters, criminals, and terrorists" without evidence to support the position.

The discussion intensified with a Wall Street Journal report suggesting substantial crypto funds were used to find terrorist Palestinian groups, a claim challenged by blockchain analytics firms like Chainalysis. Shortly after the WSJ publication blockchain security firm Elliptic stated that there was no substantial evidence supporting significant crypto donations to Hamas, noting the transparency of the blockchain and the effectiveness of monitoring tools in tracking and freezing fund flows, leaving the Wall Street Journal with egg on their face.

These events underscore the dynamic nature of cryptocurrency regulation and the battle over the narrative and the Overton Window around such regulation. Even positive developments like the Deploying American Blockchains Act are overshadowed by measures such as the Terrorist Financing Prevention Act with a "risk focus" outweighing an "innovation focus" when the two are not mutually exclusive. In addition to the disparaging comments toward crypto in the recent presidential debates, it is clear the US still has a long way to come on reaching consensus on regulation. As both bills navigate the complex legislative process, the crypto industry watches closely, with a pessimistic view towards the likely future regulatory landscape in the United States for blockchain technology.

By Michael Bacina and Luke Higgins


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