In the United States, crypto reform legislation is not the exclusive domain of a single political party. According to a former congressman who held a significant role in the Trump administration, the likelihood of passing a federal law on “digital assets” this year is high.
Mick Mulvaney, the former budget director and acting White House chief of staff, stated that Democrats and Republicans disagree on blockchain/crypto issues. Mulvaney also predicted that Congress would enact significant legislation on digital assets within the remaining 14 to 16 months before the next election cycle.
Mulvaney has a vast range of government experience, having served in the U.S. House of Representatives for six years, acting as director of the Office of Management and Budget, and acting as a special U.S. envoy. He is a strategic advisor for Astra Protocol, a Swiss-based Web3 Know Your Customer (KYC) platform.
Comparison Between Centralized And Decentralized Finance
Mulvaney’s interest in Bitcoin and blockchain technologies dates back almost a decade. He co-founded the Congressional Blockchain Caucus in 2016. Nowadays, he asserts that decentralized finance (DeFi) protocols offer significant advantages over centralized alternatives. In addition, it is now possible to incorporate essential compliance processes such as Know Your Customer and Anti-Money Laundering into DeFi platforms, reassuring regulators.
In his opinion, there is a strength that comes from decentralized finance and a weakness in the system when it comes to centralized finance. He explained that much of the fraud commonly associated with the crypto space could be traced back to centralized entities, from Mt. Gox to FTX. He believes DeFi brings additional layers of transparency, making fraudulent activities more challenging. He added that DeFi had demonstrated itself as the better system over the past decade. He noted that even regulators are starting to recognize this.
Regulatory Failures In The Financial Industry
It would be difficult to avoid bringing up the present banking crisis while dealing with one of the administration’s top financial managers. Silicon Valley Bank (SVB) was likely the epicenter of this turmoil. Some critics, including Senator Elizabeth Warren, condemned the Trump administration for relaxing banking regulations that could have prevented SVB’s bankruptcy.
Following the financial crisis of 2007-2008, the concept of “stress testing” for large, too-big-to-fail U.S. banks was introduced in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
In 2018, the threshold for testing was modified, resulting in SVB and Signature Bank (both experiencing difficulties) no longer being regarded as “systemically important financial institutions” subject to stress testing. In The New York Times, Warren stated that if Congress and the Federal Reserve had not eased the stricter oversight, Silicon Valley Bank (SVB) and Signature Bank, both in trouble, would have been subjected to more robust capital and liquidity requirements to withstand financial shocks.
According to Mulvaney’s response, he does not agree with Warren’s claim that the previous presidential administration was at least partly to blame for the recent banking failures. He suggests that the changes made in 2018 needed to be more significant to cause the failure, as they only affected banks with under $250 billion in balance sheet assets. Therefore, Mulvaney does not believe that the previous administration’s actions played a significant role in the situation.
Mulvaney stated that Silicon Valley Bank was still subject to some level of bank regulation, just not the highest level. However, he believes that the duration risk that led to SVB’s troubles is a basic factor that regulatory bodies like the SEC, FDIC, and Fed should consider. Mulvaney suggests that even the lowest levels of regulation should have identified this issue.
Mulvaney remarked that the failure of regulators to catch the management failure at Silicon Valley Bank was unrelated to crypto and should not be seen as a crypto-induced problem. He emphasized that the issue was with the bank’s management and failure to manage duration risk appropriately and that regulators should have caught this issue even at the lowest levels of regulation.
Bipartisan Backing For Crypto
Mulvaney has a positive outlook on the possibility of bipartisan interest in Congress leading to the passage of federal legislation on crypto reform or blockchain this year. He cites antipathy to China, suspicion of Big Tech, and an interest in crypto and blockchain as factors that have united lawmakers across party lines.
Mulvaney notes that even the House Financial Services Committee, on which he once served, has a Digital Assets Subcommittee that includes both Republicans and Democrats who support crypto and blockchain. Mulvaney believes that this bipartisan support for digital assets reform legislation could lead to meaningful legislation being passed in the near future.
Mulvaney explained that the U.S. Senate had witnessed bipartisanship as well. In 2022, a regulatory framework for digital assets was proposed by Republican Cynthia Lummis and Democrat Kirsten Gillibrand through the Responsible Financial Innovation Act. Mulvaney further stated that a group of individuals in both political parties are interested in the topic and want to educate themselves and know more about it. He added that this is the current scenario with crypto and blockchain.
The Future Of Compliance
Astra Protocol, where Mulvaney holds a strategic advisory role, markets itself as a new standard in compliance, offering a decentralized Know Your Customer (KYC) platform for Web3. The platform aims to bring financial regulatory standards for more than 155 countries and over 300 sanctions and watchlists to the cryptocurrency industry without compromising anonymity. Numerous banks and businesses commonly use the KYC (Know Your Customer) process to authenticate the identity, suitability, and potential risks associated with prospective customers.
According to Astra Protocol, its “patented technology” utilizes specialists from big global firms to authenticate a user’s credentials and conduct KYC checks on potential DeFi users. This allows DeFi protocols to comply with data privacy rules without accessing individually identifiable information about investors. The concept is comparable to zero-knowledge proofs.
Navigating The Challenges Of New Technology
Mulvaney has stated that the previous administration under Trump had a similar approach to cryptocurrencies and blockchain technology as the general public at the time. Due to their newness, there needed to be more clarity about which regulatory agency should take the lead in overseeing digital assets.
During the previous administration, Mulvaney recalled conversations with then-Comptroller of the Currency Joseph Otting about regulating digital assets. The uncertainty at the time was due to the novelty of the technology, and there were discussions about which agency should take the lead in regulating it, such as the Commodity Futures Trading Commission (CFTC), the SEC, or a banking agency. Mulvaney argued that it was appropriate not to have ironclad positions when adjusting to new technology.
Gensler’s Skepticism Of Crypto
Mulvaney suggests that the current Biden administration engages in open-minded discussions about cryptocurrencies and blockchain technology, much like the previous administration did. Mulvaney expressed concern that SEC Chairman Gary Gensler, who he describes as a “crypto skeptic,” is dominating the discussion and taking sides. Mulvaney leans toward the CFTC regulating digital assets more like a commodity and suggests that any other department or commission would be a better option than the SEC as long as Gensler is in charge.
Resistance To Digital Currency Adoption
Mick Mulvaney stated that the long-term prospects of crypto and blockchain are not hindered by any Achilles heel that would limit global adoption, despite concerns that criminals and terrorists are misusing the technology.
Lawmakers, according to Mulvaney, are gradually realizing that law enforcement agencies have known for a while. Crypto is more advantageous for law enforcement than cash since it is anonymous but still traceable. He also stated that resistance to crypto’s adoption would likely come from countries worried about their currency being replaced, such as those in the European Union.
Mulvaney supports the CFTC regulating digital assets more like a commodity than a security, rather than the SEC, which he believes is dominated by a crypto skeptic. Finally, he believes that the International Monetary Fund’s (IMF) position on private money being the official currency is not responsible, as it should not interfere with what countries want to adopt as their official currency.
From The Gold Standard To Bitcoin
Mulvaney became interested in Bitcoin nearly a decade ago by chance. While attending a conference on the gold standard, he met a woman who spoke about Bitcoin and its fixed total number. Intrigued by the technology, Mulvaney and the woman discussed Bitcoin’s history, workings, and adoption.
As head of the Office of Management and Budget, he saw firsthand the currency’s inflation, reinforcing his attraction to Bitcoin. He appreciated that its value is set by technology and that the government could not unilaterally change its value by fiat. Mulvaney believes that many people share his fascination with Bitcoin.