© Courtesy of The HillAfter a turbulent 2022, when the cryptocurrency market crashed, the value of the coin has improved and is now close to a yearly high. But now advocates fear regulatory chaos in the United States, which could mean new flows of investment abroad.
"This is a global technology. The market tends to over-correct against the United States," said Sheila Warren, CEO of the Cryptocurrency Innovation Council. "The global picture is really telling, and that's what's happening here."
"Consumer confidence has never been more global," he said.
The two largest cryptocurrencies, Bitcoin and Ethereum, are up 82% and 59% respectively since January as Congress tries to decide how to respond to last year's FTX market crash and stability issues in the broader cryptocurrency industry.
"The collapse of FTX last fall and the upheaval it caused in the crypto industry showed that the status quo is unsustainable," Lee Reiners, a finance professor at Duke University and a crypto critic, told the Senate Banking Committee in February.
Those hearings led to numerous regulatory proposals from lawmakers, ranging from regulating cryptocurrencies like stocks and bonds to trying to better separate them from traditional banking.
While the fall in FTX undermined confidence in the industry, it was not a sign of potential volatility. Earlier this year, the South Korean was accused of manipulating the prices of cryptocurrencies Terra and Luna, which collapsed last year.
Crypto-related businesses like non-tradable tokens have also experienced massive boom and bust cycles in recent years. While major companies and celebrities have launched NFT lines over the past year, the digital asset market is now dying after its peak.
All of this heightens the debate over how to regulate cryptocurrencies, which cross the lines of investment instruments and currencies.
According to Blockchain Association lobbyist Ron Hammond, the mixed messages at the congressional hearings left the door open for regulators like the Securities and Exchange Commission to determine their own regulatory paths without Congress, causing uncertainty among industry players.
"It's so random ... what we've seen with the SEC and especially the (Commodity Futures Trading Commission), they don't even agree with themselves on what regulation makes sense," he said.
Hammond criticized the SEC for cracking down on crypto companies regardless of how closely they cooperate with regulators, raising fees and making it difficult to invest in US markets.
But those SEC notices are just enforcement, Reiners told The Hill.
Last month, the SEC warned investors to be careful with cryptocurrency investments. Likewise, the Federal Reserve joined other agencies earlier this year in revising warnings to banks, encouraging financial institutions to implement more comprehensive risk management on cryptocurrency-related accounts.
The Fed's warning comes after the collapse of Silicon Valley and crypto-rich Signature Bank, two of the largest banks in US history.
"I don't see a situation where developers will actually want to come to the US or start work in the US because it's confusing," Hammond said. "We've seen companies now look at their startups in Paris, Lisbon, England and Singapore because they at least know the rules of the road there."
"We've seen (companies) go to countries that have regulations just because they know what they can and can't do," he said.
A study by cryptocurrency company Electric Capital shows that there are fewer cryptocurrencies in the United States today than in years past. According to an analysis of GitHub codebase contributions, about 29% of cryptocurrency developers now live in the United States, up from 40% in 2017.
However, according to the study, the number of developers worldwide increased almost tenfold during this period, and although prices fell last year, the number of developers continues to grow.
"Antipathy to cryptography is a uniquely American phenomenon," Warren said. "The United States is very myopic in this respect."
But Reiners is more skeptical of claims of a "brain drain" in the US crypto industry.
“I think these claims are exaggerated.
Hammond, who has worked with lawmakers on cryptocurrency laws since 2017, said part of the antipathy stems from a lack of understanding of the technology. Now more deputies participate in it.
"The good news is that in 2017, the number of participants who know what it is has gone from three to five, and now it's up to 100 or 150," he said. “Now we're really seeing an age trend. In particular, we're seeing younger members of Congress and regulators become more open to technology and its promise.
Hammond said Congress has moved from radical reform to a strategy of piecemeal regulation because of the difficulty of passing major laws in a divided institution. Reiners says this phased strategy also allows Congress to move more slowly and ensures that each piece of legislation passed is truly effective.
"What's important from a regulatory perspective is that we do it right," Reiners said. "I see it as more of a tortoise and a hare situation."
"The devil is in the details," he said.
Both Hammond and Reiners expect the biggest regulatory breakthroughs to come from stablecoins, cryptocurrencies that are pegged to traditional currencies and could theoretically be used as stable financial assets.
Stablecoin regulation has been a priority for House Financial Services Committee Chairman Patrick McHenry (RN.C.). The Biden administration has also called for increased regulation of stablecoins, citing concerns about the impact on the assets used to stabilize them.
"Stablecoins are a fairly common bridge between cryptocurrencies and traditional finance," Hammond explains. "I think it's a great way for members of Congress who don't know crypto to say, 'At least I know traditional finance,' to understand a little bit more about what it's like."
When it comes to the industry's interests as Congress considers the bill, Reiners believes the lack of news is good news.
“I think they are too focused on regulation. Whatever happens will happen, but the industry needs to think about creating tools, products and services that people really value and benefit from.”
Visit The Hill for the latest news, weather, sports and video streaming.