[Feature] Behind Warren's Crypto Crusade: is this the end of the era of crypto-friendly legislation?

If there’s one person that is public enemy number one in the crypto space, it’s probably Elizabeth Warren.

The Democratic Party Senator will be no stranger to most- she ran for president in 2020, though she failed to secure the party nomination. And she’s made it abundantly clear that she intends to run again this election.

But this time, her announcement came with an additional kicker- that she’s building an anti-crypto army.

And it’s not the first time that she’s made clear her opposition to crypto.

In the wake of the FTX meltdown last November, Warren called on the US Securities and Exchange Commission and other banking authorities to protect consumers, educate investors, and pursue “meaningful consequences” for bad actors.

She also praised the SEC for keeping crypto volatility out of the traditional banking system, and for bringing charges against “crypto crooks”. She’s also spoken out against the environmental impact of cryptocurrency mining.

But this time, it’s not just Warren.

Her new bill, the Digital Asset Anti-Money Laundering Act, is supported by Republican Senator Roger Marshall, in a rare show of bipartisan support.

While Marshall has been criticised by his own party as well, it’s worth taking a look at both of their reasons- and why crypto has managed to bring politicians from both sides of the aisle together.

The Democratic concern: consumer protection and regulation

Democrats have long been concerned with ensuring that businesses operate fairly- so that consumers are protected.

The way that they have done so has been to introduce legislation and regulation to industries that have proved themselves unable to self-regulate.

In the wake of the Enron scandal, accounting standards were tightened, to ensure that companies could not misrepresent their financial position.

After the 2008 Financial Crisis, the US passed the Dodd-Frank Act, cracking down on risky lending practices.

And now, in the wake of the FTX meltdown, Celsius bankruptcy, and Luna Crash, among others, crypto is now in the crosshairs of regulators.

It’s not only Warren from the Democratic Party that is demanding tighter regulations.

SEC Chairman Gary Gensler has been leading his own crusade to regulate the industry, beginning with trying to end front running and market making activities by crypto exchanges.

And Gensler’s rhetoric is also reminiscent of his time as CFTC chair, 15 years ago. During his testimony to the Senate Banking Committee in 2021, Gensler said that the rapid proliferation of cryptocurrencies and investment products tied to them resembled the ‘wild west’. As CFTC Chairman during the Obama Administration, he also led a campaign to ‘start policing the Wild West of finance: the murky market for over-the-counter derivatives”.

The policies that the Democratic Party have been pushing for are in line with such goals- pushing for legislation that will impose stricter requirements for companies to prevent rather than mitigate surprises.

Warren’s Digital Asset AML bill and anti-crypto army are simply the current iteration of this. It’s a response to the failure of self-regulation and a crypto industry that has long characterised itself as beyond regulation and demanded that lawmakers adapt to it.

But Warren’s bill has attracted Senators from the conservative Republican Party to join as well- and they join for a different reason.

The Republican concern- national security

As the more right-wing of the two major parties in the US, the Republican party has often been concerned with foreign policy and maintaining American hegemony.

Protectionist policies to support American industries, and sanctions to cripple America’s enemies, have been a mainstay of Republican politicians and presidents.

Marshall’s support for Warren’s crypto legislation stems from this concern- that crypto is being used by anti-American forces and countries in order to launder money and fund anti-American efforts abroad.

But Marshall, as of now, remains in the minority of the Republican party when it comes to how he views crypto. Few in his party agree with his position that crypto represents an existential threat to the US, and deserves attention as an issue concerning national security.

That being said, this position may soon change- the US Dollar, long privileged as the world’s reserve currency, is slowly losing its lustre, and countries are increasingly looking to other currencies to serve as reserve currencies.

Cryptocurrencies have been touted to be able to perform such a role- and whether or not jingoistic Republicans will stand for a world where the US Dollar is no longer the world’s reserve currency will be one of the major tests of the Republican Party’s support of crypto.

But if the Republican party’s record of prioritising national security is to be relied upon, crypto enthusiasts can only count on the GOP’s support insofar as the US security and foreign policy can be assured. And the fact that many states unfriendly to the US have been quick to adopt crypto and blockchain tech, this support may well expire in the near future.

Is the end of crypto-friendly legislation upon us?

Given the relentless assaults on crypto that various branches of the US government seem to be launching on crypto, does it signal the end of crypto-friendly policies in the US? Probably not.

The coalition that Warren is building is gaining momentum, but it is also facing some stiff opposition.

Congressman Tom Emmer has already accused Warren of being a control freak, and suggested that Gensler’s enforcement actions are done in bad faith and achieve nothing.

Evidently, while Republicans may be none too keen to allow crypto to get in the way of nationalist objectives like security, they are also wary of allowing crypto regulation to become an excuse to stifle the free market and develop into ‘big government’.

Warren may be able to court the republican vote for now, by framing the issue as one of national security. But this in itself is limited- not everything can be framed in terms of national security as easily, and she may eventually find herself facing a crypto lobby flush with cash and Republicans willing to support their cause.

But at the same time, how far the Democratic party is prepared to back Warren on her crusade is also questionable. Even regulators like Gensler recognise the potential benefits that crypto and digital assets can bring. Gensler has made clear his position that his goal is not to force crypto out of the US, but instead to allow it to operate with oversight.

What he wants is for crypto companies to be forced to make the appropriate disclosures, to ensure that investors are given adequate information before they invest, which he argues will actually benefit the industry in the long run as its overall health improves.

Despite pressure from Warren to do more, Gensler has thus far remained a firm regulator and nothing more.

Clearly, Warren and her anti-crypto army are not facing the warmest welcome: but bipartisan legislation is not to be underestimated as well- it is a symbol of her willingness to cross the aisle at a time when tensions between the two major parties is still high.

And with some republicans willing to meet her halfway, her coalition might prove to be one of crypto’s most intractable enemies. That, however, will depend on how well she utilises the fall of FTX and other crypto companies- and how well she can turn crypto into a national security issue.