Bitcoin boosters fear crypto world is getting 'rug pulled' by Congress

By Chris Matthews

A bitcoin purist warns lawmakers don't have crypto's interests at heart

Welcome back to Distributed Ledger - your one-stop-shop for all things crypto. I'm Chris Matthews, a reporter in MarketWatch's D.C. bureau, where I cover the intersection of public policy and markets.

I'm filling in this week for crypto maven Frances Yue, who's reporting this week from the CoinDesk Consensus 2024 conference in Austin, Texas.

Markets continue to digest one of the most eventful weeks in crypto policymaking history, after 279 members of Congress voted to pass a comprehensive market structure bill that could revolutionize the regulation of digital assets in America.

Combine that vote with an apparent about-face from the Biden administration on both spot ether exchange-traded products and the need for root-and-branch reform of the crypto regulatory apparatus, and you can see why some in the industry are jubilant.

You can find me on X @crobmatthews to share your thoughts on this week's installment and the many developments from D.C. that bear watching for crypto investors.

Let's hope they're not 'insane fascists'

The crypto industry has notched historic victories in Washington in recent weeks, winning two bipartisan votes in Congress calling for more business-friendly regulations and preliminary approval from the Securities and Exchange Commission for a spot ether (ETHUSD) ETF.

To top it off the Biden administration signaled renewed interest in working with crypto firms to enshrine into law custom regulations that could undermine the SEC's attempts to bring crypto firms like Coinbase (COIN) and Binance to heel.

If the legislation were to become law, it would give primary regulatory responsibility for crypto to the Commodity Futures Trading Commission at the expense of the SEC.

Not every crypto enthusiast is celebrating, however, with many seeing the policies being embraced even by the regulation-skeptical Republican Party as a wolf in sheep's clothing.

"Crypto folks are getting rug pulled again," said Bruce Fenton, former executive director of the Bitcoin Foundation, on X. "This time by Congress."

He added, "No, the U.S. government isn't suddenly pro-freedom and pro-crypto."

Bitcoin (BTCUSD) was created the wake of the 2008 financial crisis and skeptics of government like Fenton were some of the first to adopt the cryptocurrency for its decentralized nature, limited supply and promise to circumvent the seemingly omniscient and powerful traditional financial system.

Fenton said in an interview with MarketWatch that there are many "well meaning people in our space who think they can craft the perfect regulation, and that will solve our problems."

"I just disagree with that," he added. "We need to focus on getting rid of the existing regulations."

Fenton's stance is at odds with large crypto companies and industry associations, who have championed new, custom regulations for the industry.

"These organizations don't have a great track record," he said. "They're filled with the type of people who are rent seekers, and not able to produce, who view this as a way to move their career forward, whether they're a lawyer or just somebody who wants to work and rub elbows."

Prominent crypto lawyer Gabriel Shapiro, founder of the software-as-a-service company MetaLeX, agreed in an X post last week.

The crypto community has been fooled "so bad on this FIT21 thing," blinded by their dislike of the SEC, he said. "we are just handing this authority over wholesale to the CFTC and hoping they are not insane fascists."

The ether horse race

The SEC took a major step in greenlighting an ether spot ETF last week, taking many insiders by surprise, but it still must approve registration statements from issuers before they can be offered to the public.

Eric Balchunas, a senior ETF analyst with Bloomberg Intelligence predicted on the ETF Prime podcast Tuesday that it will take the SEC about a month to approve those statements and allow the products to trade.

He also predicted a "carbon copy horse race" that mirrors issuer's attempts to gain scale as they launched bitcoin spot ETFs earlier this year, with inflows of up to $2 billion in the first weeks of launch.

One aspiring entrant in the horse race, Ark Invest CEO Cathy Wood was surprised by the SEC's reversal on the issue saying at a CoinDesk Consensus panel discussion Wednesday that until last week, "we were sure it was going to be denied."

The investment adviser doesn't think the crypto ETF craze will spread much further than bitcoin and ether.

"There can be these two, and maybe Solana," Wood said. "I don't think that the wirehouse platforms will want to do more than one major strike just to give their clients exposure to this new asset class."

The price of ether is down about 0.7% over the past week, but has gained more than 17% over the past month.

Former FTX exec gets 7.5 years in the Salamer

Ryan Salame, an FTX executive who rose to be co-CEO of the company's Bahamas affiliate was sentenced to 90 months in prison Tuesday for conspiracy to make unlawful political contributions as part of Sam Bankman Fried's influence peddling campaign.

Salame pleaded guilty to the charges last September, and agreed to forfeit $1.5 billion.

Crypto snapshot

Bitcoin (BTCUSD) is down about 4.7% over the past seven days, trading at around $67,000 as of Wednesday afternoon, as trader interest in ether may have stolen momentum for the world's most popular cryptocurrency.

Shiba Inu (SHIBUSD) was one of the better performing altcoins over the past seven days, rising nearly 4%, after Kabosu, the Japanese dog who inspired DogeCoin (DOGEUSD) and later Shiba Inu, died at the age of 18.

Avalanche had a tough week, declining about 10%, while Solana (SOLUSD) shed 8.3% and Cardano (ADAUSD) fell 6.3%

Must-read

Ether ETFs near debut as some Democrats see 'fervent opposition' to crypto as political liability (MarketWatch)Japanese dog who inspired cryptocurrency DogeCoin dies at age 18 (MarketWatch)PayPal USD to go live on Solana blockchain (The Block)BlackRock's $20 Billion ETF Is Now the World's Largest Bitcoin Fund (Bloomberg)

-Chris Matthews

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05-29-24 1245ET

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