During her appearance on CNBC’s “Squawk Box,” Senator Cynthia Lummis of Wyoming provided an insightful take on the regulatory landscape surrounding digital assets, the challenges posed by existing frameworks, and the current state of the 2024 election. Lummis emphasized that, despite the progress seen in the crypto industry, particularly over the last year, the U.S. still lags behind in establishing a clear regulatory framework. According to Lummis, the European Union has taken the lead by implementing effective regulations in January 2023, which puts the U.S. “behind the eight ball.” Lummis pointed out that the U.S. cannot afford to let other countries get ahead in financial services, signaling the urgency of addressing these regulatory gaps.
Lummis highlighted the role of SEC Chairman Gary Gensler, stating that his approach to regulating digital assets has been problematic. She remarked that Gensler’s method of regulating through enforcement actions rather than establishing clear rules of the road has created confusion within the industry, leading to court cases instead of clarity. Lummis criticized Gensler’s tendency to conflate the digital assets themselves with bad actors in the space, adding that the real issue lies with some firms, often offshore, rather than the assets. Lummis compared this conflation to disliking NASDAQ stocks because of historical issues with pink sheet stocks, stressing that fraud can happen with any asset, whether it’s yachts, art, or digital currencies.
Lummis expressed her belief that Congress must take the lead in regulating the crypto space. She reiterated that although the SEC claims to have the tools it needs, its application of those tools has been flawed. Lummis argued that Bitcoin and Ethereum should be classified as commodities, overseen by the Commodity Futures Trading Commission (CFTC), rather than being lumped into the SEC’s jurisdiction. She acknowledged that additional digital assets may fall under the CFTC’s purview, but this requires clear definitions and regulatory clarity. Lummis noted that the Howey Test offers guidance, though it may need updating to reflect the evolving nature of digital assets.
While discussing the role of the CFTC, Lummis responded to concerns about the agency’s lighter touch in regulation due to its limited resources. She pointed out that her proposal with Senator Kirsten Gillibrand included a change to the wash sale rule, which would provide the necessary funding for the CFTC to increase its oversight capabilities. In this way, Lummis underscored the importance of proper funding to ensure effective regulation without stifling innovation in the crypto space.
Shifting to the broader political landscape, Lummis commented on the potential outcomes of the 2024 election. She shared the belief that the Senate may shift to Republican control while the House could lean Democrat. Lummis remarked that many investors are banking on the stability of a divided government, which tends to limit sweeping changes that could disrupt markets. However, Lummis cautioned that a divided government might not be as favourable for digital assets, pointing out that a Republican-led Senate would likely be more supportive of creating a statutory framework for digital assets. She mentioned that Senator Tim Scott, who would chair the Banking Committee under a Republican majority, is more interested in advancing legislation for digital assets compared to current chairman Sherrod Brown.
Lummis expressed optimism about the potential for Republicans to gain control of the Senate, specifically noting key races in states like Montana, Ohio, and Pennsylvania. She shared confidence in Republican victories in Montana and Ohio, and while she acknowledged that races in Nevada, Arizona, and Michigan are still tight, she sees opportunities for Republican wins. Lummis also commented on the idea that many investors prefer a divided government, as it prevents one party from controlling both Congress and the White House, which could lead to extreme policies. Despite this, Lummis argued that the slim margins in the House, regardless of which party wins, would prevent either side from enacting radical changes.
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