Cynthia Lummis and Pat Toomey. (Photo By Tom Williams/CQ-Roll Call, Inc via Getty Images)
(Full disclosure: I’m helping build Coinbits.app, a bitcoin banking platform.)
The recent bipartisan decision by the U.S. Senate and House of Representatives to overturn the Securities and Exchange Commission's Staff Accounting Bulletin No. 121 (SAB 121) marks not just a significant moment for the digital asset industry but also underscores a deeper systemic issue in U.S. regulatory practices.
The move illuminates the oftentimes upside-down relationship between legislation and regulation, where lawmakers are finding themselves in the position of repealing regulations rather than crafting laws that guide regulatory action.
The legislative process is supposed to be led by Congress, which is entrusted to pass the laws that regulatory agencies enforce. However, the move to overturn SAB 121 represents a role reversal that is becoming increasingly common.
Rather than setting the parameters for regulation, Congress is stepping in to retract what many see as overreaching regulations that were implemented without the backing of a legislative process.
This dynamic highlights a fundamental issue in the balance of power between the legislative and executive branches, and will prompt both the public and lawmakers to reconsider the extent of authority delegated to regulatory bodies.
Along these same lines, the Supreme Court is expected to limit or even overturn the Chevron doctrine before the end of its term. This rule, which has been in effect for over 40 years, is the source of much of the power that regulatory bodies often exert independently of congressional oversight.
In parallel to the overturning of SAB 121, another legislative effort is gaining traction that further illustrates Congress’s proactive engagement with the bitcoin and crypto industries. The Financial Innovation and Technology Act of 2021 (FIT 21) includes measures to protect self-custody and outlines a general market structure for industry participants, ensuring that regulatory agencies cannot take enforcement actions without clear legislative backing.
FIT 21, championed by industry leaders and currently under consideration in the House, stands a good chance of passing due to the momentum generated by the successful challenge to SAB 121. However, it faces potential hurdles in the Senate. Despite these challenges, the progress of FIT 21 could represent another step towards reasserting the power of elected representatives over financial matters.
It may well be that SAB 121 is vetoed by President Biden, and FIT 21 never makes it out of the Senate. However, recent events indicate that a growing number of elected officials are waking up the problem with regulatory overreach and the danger of stifling financial innovation in the U.S.
Bitcoin’s destiny to be the future of money is and will remain unaffected by the actions of temporary politicians. However, if the U.S. gets bitcoin wrong, it may cede its position at the center of global finance to other jurisdictions better able to capitalize on the transformative opportunity provided by bitcoin and related technologies.
