Those who watch only the price charts may conclude that cryptocurrencies are in a slump. But those who, like Kristin Smith, represent the crypto industry to officials in Washington are still seeing plenty of action. Five months into her job as director of external affairs for the Blockchain Association, Smith, a Capitol Hill veteran and former D.C. policy lawyer, says she has finally “gotten used to the pace.”
In December 2018, Smith helped to get a bill introduced to the House of Representatives that, if it becomes law, will save many digital tokens from being regulated as securities —a boon to software developers and potential users of decentralized apps. But this is a new year and a new Congress. To advance any version of the bill, dubbed the Token Taxonomy Act, Smith is forced to search for crypto champions in the newly Democrat-controlled House.
Darren Soto, a Democrat from Florida who is sponsoring the bill with Warren Davidson, a Republican from Ohio, is one such champion. He is reportedly crafting legislation that uses last year’s bill as a starting point to divide crypto assets, for legal purposes, into three separate categories, with a different level of regulation—and a different regulator providing oversight—for each category.
Meanwhile, Smith is busy bearding legislators in their dens. So interested are some members in the topic of blockchain that Smith has started allotting more time for meetings. “They end up being really long conversations,” she says. “I’ve had situations where people are literally on the edge of their seat.”
Smith remains the Blockchain Association’s only full-time employee, though she is now backed by a small army of outside consultants. There is the lobbying firm kept on retainer (with six pros assigned to the trade association’s account), the public relations firm in New York, and two law firms. One of them, the white-shoe Davis Polk & Wardwell, which is helping the Blockchain Association interact with the Securities and Exchange Commission, employs nearly 1,000 attorneys and is the 26th-highest-grossing law firm in the world.
Funding all of this is the Blockchain Association’s membership, which now numbers 19 firms, up from 11 last September. The trade group has nearly doubled its operations budget in three months. Among its members are Coinbase, Circle, Digital Currency Group, Blockstack, and Polychain Capital. (Large companies pay more in dues than smaller firms.) The group is now looking to hire someone to serve as policy counsel, making employee No. 2.
What invigorates Smith is the chance to shape a whole new swath of law and policy. “So many policy battles in D.C. have been going on for years, and everything is kind of entrenched,” she says. “It’s pretty cool to see something grow from the beginning.”
We speak on Jan. 24, the day before President Trump finally agrees to end, at least temporarily, the longest government shutdown in U.S. history. As of yet, the White House has taken no official stance on cryptocurrency or blockchain technology and given conflicting signals about whether or not it might assist the industry. On the one hand, Trump has pursued an aggressively pro-business agenda, indicating that his administration might encourage the fledgling crypto industry. On the other, he has frequently saber-rattled on globalization, suggesting that the White House might not support financial technology that cares nothing for national borders. I’m curious to know how the shutdown has affected Smith’s work, and what, if any, action she foresees the Trump administration taking to either promote or oppose crypto.
You met with the White House in December to discuss crypto regulation. How did that go?
It was definitely a preliminary conversation. I think they have an interest in understanding the industry more. They’re in the education phase; they’re trying to wrap their heads around its potential. I don’t see any action or position [being taken] in the short term, but they’re definitely listening, and wanting to talk to people, and trying to understand it. We’re hoping to have more meetings there soon.
Who did you meet with?
We met with the Office of Public Liaison, which is the first stop you make [at the White House]. They’re in charge of relationships with industry. We’re hoping to meet with some of the other offices in the first quarter of this year.
Is there anyone in the Trump administration who is looking into or guiding their blockchain policy right now?
The SEC and the CFTC are both independent agencies [not directly under the control of the White House]. The most action within the executive branch has been at the Treasury Department. Craig Phillips, who is one of the counselors to Treasury Secretary [Steven] Mnuchin, gave a speech a few months ago announcing that [Treasury] was going to work with other agencies to develop a framework for how to regulate cryptocurrencies. They are working through the FSOC (Financial Stability Oversight Council) process.
[FSOC’s] primary mission is to look at things that pose systemic risks to the financial system. But that is not how they’re perceiving [crypto]. FSOC is really more of a convening mechanism [to gather] all of the different financial services agencies together on a regular basis. As of December, they were in the process of meeting, working to develop some sort of report that looks at the industry and makes some recommendations as to what would be the right regulatory structure [and how to establish it].
We’ve met with Craig Phillips, and we want to continue to be a resource to Treasury. My sense is that [the report] is in the relatively early stages. They’re trying to look at it from multiple angles. Mnuchin is appointed by Trump, the Treasury Department is an extension of the Trump administration, and I think the most substantive position we’ll have [from the executive branch] will come out of this report. But I think we’re quite a ways off from getting that, especially with the shutdown. I imagine it would be summer 2019, if not later, that we actually see that come together.
And even then, it will only be a report making recommendations, right?
Yeah, but it would give us a sense of where the administration is at. These things are important. Back in 1996, the Clinton administration put out a report [that encouraged the growth of the internet]. If Treasury were to decide: “Let’s do a light-touch framework and allow this to thrive; we believe it has the potential to be the future of technology and finance, and we need to be thoughtful in making sure that we’re not misapplying existing regulations,” that would be a boon to the industry. We’re pushing them to try to do something in that direction. We could potentially get something directly from Trump or from one of his advisors at the White House, but I don’t think at this stage it’s necessary for the President himself to weigh in on this stuff. It’s so complicated, and it’s really a very technical issue.
It sounds like maybe you think it would be better for him not to weigh in just yet on such a complex, delicate issue…
Yeah. Well, listen, if he were to come out and say wonderful things about the industry—to have the president of the free world come forth and say something like that would be amazing. I just don’t think it’s necessary for what we need to do. What we need are pretty detailed, in-the-weeds tweaks to some existing frameworks to allow crypto to thrive. That involves working directly with the SEC and working with the House Financial Services Committee and the Senate Banking Committee. It’s just not a necessary thing for the President to do. That being said, if he wants to do it, that would be great.
How do government shutdowns affect your work? It sounds like you’re still up on Capitol Hill all the time.
During a partial government shutdown, some of the agencies have been funded, and Congress of course made sure that the legislative branch was funded back in September, so they’re fully operational. All of their staff are working. It’s not a situation where some of the nonessential congressional staff aren’t working. But the SEC and the CFTC are not funded [during a partial shutdown], so they are closed. We’ve had meetings with the SEC that were on the books for quite a long time that have had to be canceled. We’ve been focused on introducing ourselves to the new [House] members and working with the Democrats who are in power, getting them educated and up to speed on our issues. So yeah, there has still been plenty of work to do. Sometimes it’s kind of nice to have the SEC and the CFTC closed, because it makes my life a little simpler. But no, we obviously want them to be open and functioning.
Among the freshman class of House representatives, who stands out as being particularly pro- or anti-crypto?
I have a shortlist of folks whom I’ve been told would be good to meet, and we’re getting those meetings set up right now. There aren’t any immediate champions who are jumping out. But we have had some good meetings with some existing members who are very interested in learning about this. The House Financial Services Committee is divided into subcommittees, and the Capital Markets subcommittee is chaired by Carolyn Maloney, out of New York. We’ve had some really good interactions with her and her staff. So much of the crypto industry is right in Maloney’s district. We had a great meeting with her at [the office of] one of the companies in the Flatiron District. But I think she’s still wanting to learn more and get a little bit deeper into the nuances of the industry. We’re having good conversations. But it’s a process.
Yeah, I remember we talked last fall about Rep. Maloney as sort of an opponent of the industry, but an opponent who could potentially be persuaded.
I wouldn’t classify her as an opponent. The industry had its moment when there were some nefarious players that were in it, and she was very concerned—and rightfully concerned—about that. In some ways, the downturn in the market has been a blessing, because it has weeded out a lot of the fringe players. What’s left are really thoughtful, intelligent people who want to abide by the law. And she recognizes that. She recognizes the importance of the industry in her district—a lot of people are employed by these companies. So I think she’s trying to learn as much as she can before jumping into this. I think that’s good. We’ve got some time. Nothing is going to move right out of the gate here. But that’s okay, because there is a lot of background work that needs to happen.
Has there been any movement on Rep. Warren Davidson’s utility-token bill, which you’re lobbying for?
We got that introduced in late December 2018—a little bit late [in the last Congress]. But it was really important to get that out there, because it shows there are bipartisan members of Congress who are being really, really thoughtful about this. There’s a time and a place when tokens should be regulated as securities, but there’s also a time and a place where the securities laws don’t make sense. This is an attempt to [differentiate]. Having that out there gives the industry something to look to, and to comment on, and to improve upon.
At the same time, we need to get Democratic champions on the House Financial Services Committee interested in it, because they control the House. We’re spending a lot of our time focusing on House Democrats right now. We hope that we’ll be able to broaden the support for something that looks a lot like the Davidson-Soto bill, and get that reintroduced sometime in the coming months.
Do you think the Trump administration sees crypto, or will see it, as something to promote as part of its pro-business agenda?
If there’s anything we’ve seen out of the Trump administration, it’s an America First philosophy. It’s my hope that they will recognize that there are good [crypto] projects and good companies today that are choosing to go overseas because of the lack of clarity in our regulations here in the United States. I think the Trump administration will realize that we need to get this policy right, because if we do, then the U.S. can continue to be the leader in financial services and the leader in technology for the next 100 years, just as we have been for the last 100 years. That is my hope for where the Trump administration will land, if they decide to weigh in. And I think that is consistent with [the President’s] philosophy.
Besides making yourself known to all of the new House Dems and trying to advance the Davidson bill, what are the Blockchain Association’s top goals over the next three to six months?
We want to make progress on two major issues. The first is getting more clarity on which tokens are securities and which are not. We really like the framework that [SEC] director [William] Hinman laid out in his speech back in June. It’s very thoughtful and reasonable, but, you know, that is still just a speech. Anything we could do to get some more solid guidance out of the SEC, or get legislation like the Davidson bill, [would be helpful]. I don’t think we’ll get that signed into law in the next six months, but we should be able to get something in play in the next six months.
No. 2 is the slew of tax issues that are out there. We need some more guidance out of the IRS as to how to actually pay taxes on crypto. We want to get legislation reintroduced that would allow for a de minimis exemption from capital gains taxes for [crypto] transactions in which the gain is less than $600. We need to get a new Democratic champion there as well, because the old Democrat on that bill, Jared Polis, is now the governor of Colorado. Ted Budd, a Republican from North Carolina, introduced [last year another piece of] legislation that aimed at allowing for a like-kind exchange of cryptocurrencies to be exempt from capital gains taxes.
Traders would love that. Some reportedly incurred a lot of capital gains in 2017 with crypto-to-crypto trading, but the value of their crypto portfolios wound up crashing so badly that they didn’t have enough cash on hand to pay when the bill came due.
This is going to be a really heavy lift. Our focus is going to be on getting the de minimis exemption in play. We want to support [the like-kind exchange bill], but that will be much more difficult to get signed into law. The tax bill in 2017 limited the like-kind-exchange exemption to real estate only. There are a lot of other types of transactions out there that used to be able to do a like-kind exchange and that can’t do it anymore. Because so many different people are interested in restoring that ability, if there’s a big package that goes and opens that up, we could be a part of that, but it’s pretty expensive to do. So I’m a little less optimistic on that one. It would have to go as a package, because if we were to succeed in getting a little traction [for crypto], everybody else would jump onboard and effectively kill it.
It sounds like you don’t anticipate that any of these issues will be resolved within the next three to six months. What actions are you taking now?
Right now we want to get the de minimis exemption bill reintroduced. It’s called the Cryptocurrency Tax Fairness Act. It’s already been written, which makes it easier. It was introduced in the last Congress by Dave Schweikert from Arizona and Jared Polis, so it was a bipartisan bill. But given that Polis is gone from the House, we need to get a new leader. So we’re working to find somebody and get that introduced. And then we need to get that legislation “scored”—you have to figure out what it would cost the Treasury [if it were passed]. We’re working through the process, but given that it’s a new Congress, you kind of have to start at square one.
Photo courtesy Kristin Smith
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