When Politics Paused: Breaking the Crypto Chaos
Amid political theater, lawmakers and experts agree on fixing the regulatory maze to protect consumers and keep innovation in the U.S.
If you like articles from The Big Con, hit the like button, subscribe, comment, and recommend us in your Substack recommendations. It really helps get the newsletter to more people.
The morning began like countless congressional hearings, with members filing into the room and witnesses settling at the table, ready to testify. The hearing’s purpose: to gather input for the new "Digital Asset Market Structure Discussion Draft," a rewrite of the Financial Innovation and Technology for the 21st Century Act (FIT21). House Agricultural and Financial Services Committee chairs Glenn Thompson (R) and French Hill (R) had spent months crafting this framework, and the hearing aimed to sharpen it with expert insights.
But before Chairman Bryan Steil (R) could finish his opening remarks, Ranking Member Maxine Waters (D) dropped her bombshell: "I object to this joint hearing. Pursuant to the house rules, this joint hearing requires unanimous consent, and I do not consent."
The room fell silent. Murmurs of confusion spread as attendees grappled with the disruption. Steil, visibly surprised, asked Waters to explain her objection. She repeated her refusal without elaboration. When Representative Dusty Johnson (R) pressed for clarity, Waters finally stated her reasoning: “I object because of the corruption of the President of the United States, his ownership of crypto, and his oversight of all the agencies.”
Representative Hill was visibly frustrated. He and Thompson built the discussion on the bipartisan success with FIT21, which had passed with 71 Democratic votes in the last Congress.
Representative Lynch reminded the room of a similar bipartisan hearing in 2023, noting that Waters had six weeks’ notice and that seating charts and witness lists were negotiated in good faith. “The ranking member is undermining the opportunity for these committees to engage in a conversation vital to the American people,” he said. Unmoved, Waters reiterated her objection and invited others to join her in another room.
A few Democrats followed her out. The optics were stark: a small group walking away from the table while the other pleaded for engagement on substantive policy issues.
Yet, among those who stayed, something remarkable unfolded. Johnson pivoted to highlight real-world blockchain innovations, sharing stories of Mark, a fourth-generation Oklahoma cattleman using blockchain to enhance livestock markets, and Mike, a California engineer developing precision mapping networks. “Without tokens, the blockchain wouldn’t work, and neither CattleProof nor GeoNet would exist,” he explained. Ranking Member Angie Craig (D), who remained despite her colleagues’ walkout, emphasized digital assets’ potential for rural communities and the need for forward-thinking regulation.
The irony was glaring. By protesting Trump’s crypto conflicts, Waters and her allies refused to engage in work that could establish oversight and consumer protections. Their absence didn’t curb Trump’s ventures or close regulatory gaps—it merely grabbed headlines, ensuring those issues would fester without Congressional action.
The witnesses, prepared to share expertise on market structure and consumer protection, watched this political theater unfold. They had come to address complex issues affecting millions, only to see the discussion derailed by partisanship. Representative Thompson captured the frustration: “Today’s an example of what happens when we cannot work together. We wind up with a second-best solution.”
As the remaining members transitioned to a rebranded “roundtable,” one truth stood out: those claiming to protect American interests from crypto corruption had ensured those interests remained vulnerable by stalling comprehensive regulation.
The show—or rather, the roundtable—continued, but the opening act left a lingering impression that some representatives prioritized performance over governance. Get out your popcorn, and give it a watch.
The Experts: A Unified Call for Reform
As the roundtable unfolded, five experts—representing diverse perspectives from industry, law, and regulation—took center stage to address the urgent need for a coherent digital asset framework. Their testimonies cut through the political noise, and offered a unified vision for reforming America’s fractured regulatory landscape. From advocating for clear token classifications to proposing expanded CFTC authority, their insights illuminated a path to balance innovation, consumer protection, and global competitiveness, underscoring the critical stakes for the future of digital finance.
James Rathmell
General Counsel, Haun Ventures
Rathmell argued that existing securities laws are ill-suited for digital assets, as tokens can serve multiple roles—evolving from capital-raising tools to utility tokens for network participation. He advocated for a tailored regulatory framework that adapts to project maturity, starting with lightweight, disclosure-based rules for early fundraising and shifting to market integrity oversight as networks decentralize. Liquid markets with robust price discovery, he emphasized, are critical for crypto protocols to function, unlike traditional securities.
Alex Miller
Chief Executive Officer, Hiro Systems
Miller shared Hiro’s experience as the first—and only remaining—company to qualify a token offering under SEC Regulation A, highlighting a costly 12-month qualification process and unclear guidance on exiting reporting requirements. He urged Congress to mandate clear SEC rules for digital asset offerings, establish bright-line standards for decentralization and reporting exits, clarify that programmatic exchange sales aren’t securities transactions, and create tailored disclosure requirements that avoid burdensome audited financials unsuitable for blockchain networks.
Daniel J. Davis
Partner and Co-Chair of Financial Markets and Regulation, Katten and Former General Counsel, Commodity Futures Trading Commission
Davis detailed the CFTC’s extensive experience with digital assets since 2014, overseeing derivatives markets that account for over 83% of the digital asset market by capitalization. He argued that the CFTC’s expertise and anti-fraud authority over spot markets position it to take on expanded regulatory oversight of digital asset spot markets, providing robust consumer protections akin to those for traditional futures and derivatives.
Greg Tusar
Vice President of Institutional Product, Coinbase
Tusar stressed the need for regulatory clarity to foster innovation while protecting consumers, drawing on his experience in electronic trading. He supported updating FIT21 to clarify asset classifications, empower the CFTC to oversee digital commodity spot markets, and establish uniform federal standards to replace the patchwork of state regulations. He advocated for an integrated regulatory approach, allowing exchanges to combine trading, custody, and settlement, similar to alternative trading systems, to boost efficiency and cut costs.
Rostin Behnam
Distinguished Fellow, Psaros Center, Georgetown University and Former Chairman, U.S. Commodity Futures Trading Commission
Behnam highlighted a significant regulatory gap for non-security digital assets, noting that the CFTC lacks full authority over spot markets despite enforcement powers. He urged Congress to grant the CFTC comprehensive oversight of non-security digital asset markets, arguing this would protect consumers while encouraging innovation. He proposed a principles-based framework, adaptable to digital assets’ evolving nature, with adequate funding, disclosures, self-regulatory organization involvement, and strong anti-money laundering provisions.
Trust, Regulation, and Preserving Crypto's Foundation
Cryptocurrency completely rethinks how money and trust operate. No banks, governments, or central authorities control your funds—just decentralized networks where trust arises from code and mathematics, not institutions. Bitcoin’s creator, Satoshi Nakamoto, designed it to function “without relying on trust,” enabling secure transactions among strangers worldwide. This promise of decentralization is not just a feature. It is the foundational philosophy.
Yet, the hearing’s five experts agreed that without regulation, trust erodes. Former CFTC Chairman Behnam put it plainly: “Trust is built with a regulatory system in place.” It seems counterintuitive—how can regulation preserve decentralization? The witnesses clarified that the current regulatory vacuum undermines both innovation and trust.
Without clear rules, scammers thrive, launching fake tokens and fraudulent exchanges that siphon billions from investors. The FTX collapse, Terra Luna’s implosion, and countless rug pulls have tarnished the ecosystem’s reputation, harming not just individuals but the industry’s credibility. As one witness noted, “Bad actors will exploit any opportunity.”
Clear regulation, however, can create a safe space for decentralization to flourish. Think of it like traffic lights: they don’t exist to control drivers but to ensure smooth, safe traffic flow. Similarly, predictable rules can deter fraud, protect consumers, and foster innovation without stifling crypto’s ethos.
The Regulatory Maze: How America's Digital Asset Regulations Hurts Everyone
Imagine starting a business but getting 50 contradictory answers about the rules. Welcome to U.S. cryptocurrency regulation—a Kafkaesque maze frustrating entrepreneurs and investors alike.
At the federal level, the SEC and CFTC are locked in a turf war. The SEC claims most crypto falls under its purview but offers a vague 60-point checklist that even lawyers find unworkable. Meanwhile, the CFTC has regulated Bitcoin futures since 2014, overseeing trading that accounts for 83% of the crypto market, yet lacks authority over spot markets where most Americans buy Bitcoin and Ethereum. It’s like having rules for highway on-ramps but not the roads themselves.
The chaos deepens at the state level, where regulations - a crazy quilt of regulations varies by state. Earning rewards by securing a blockchain network? Fine—unless you’re in a state that bans it. Starting a crypto company? You’ll need licenses from dozens of states, each with unique fees and paperwork. Coinbase secured 46 state licenses to operate nationwide—imagine needing a different driver’s license for every state, with some banning blue cars and others sedans.
This regulatory mess doesn’t just delay and confuse honest businesses—it shields bad actors. When agencies can’t agree on jurisdiction, criminals slip through the cracks. As one witness said, “Regulatory ambiguity creates gaps that bad actors exploit, making enforcement harder.” Scammers thrive in lax jurisdictions, while legitimate firms flee to clearer regulatory environments like Singapore or Switzerland.
The result? A system that punishes innovation and rewards deceit. Hiro raised about $15 million through a Reg A offering and spent approximately $3 million on compliance costs. Rathmell described working with crypto entrepreneurs who are forced to become legal experts instead of focusing on building technology. And then there is Hawk Tuah Coin ($HAWK), but I digress…
The message is clear: unless you can afford armies of lawyers, don’t innovate here. Many founders relocate to countries with clear rules, where regulators are approachable without needing a translator.
The U.S. stands nearly alone among major economies without coherent digital asset rules. While American regulatory agencies debate jurisdiction, nations like the UK and Singapore attract talent and investment with clear frameworks. This regulatory chaos, meant to protect consumers, drives innovation underground and offshore, leaving Americans less safe.
The Classification Conundrum: When Nobody Knows What Anything Actually Is
At the heart of America’s crypto chaos lies a simple question: What are digital assets? Securities like stocks? Commodities like corn? The answer depends on who you ask—and when. A token can be a commodity to the CFTC one day and a security to the SEC the next, leaving businesses in legal limbo.
Take Bitcoin and Ethereum, the two most established digital assets. The CFTC has consistently treated them as commodities, allowing futures trading since 2017. But the SEC's position has veered like a drunk diver on a back road, particularly during the previous administration when Chair Gensler suggested that even Ethereum might be a security. This regulatory whiplash burdens companies with uncertainty and soaring legal costs. If regulators can’t agree, how can businesses comply?
Congressman Davidson voiced this confusion. When he asked the five crypto experts to look at the proposed legislation's classification test, he wondered aloud whether they would all reach the same conclusion. His concern was telling: "I hope we continue to refine it so we're positive everyone's going to look at the same thing and get the same answer." In other words, even the people writing the laws are not entirely confident that the classification system is foolproof.
Without clear guidance, companies like Coinbase create their own classification systems, essentially regulating themselves. But this leads to inconsistency, with different firms reaching different conclusions about the same asset. Meanwhile, the EU’s MiCA regulation offers a unified framework, and the UK and Singapore have dedicated crypto regulators. As one witness noted, “The U.S. is one of the only G20 nations without clear rules of the road.”
The result? Global businesses bypass the U.S., not for lack of talent or resources, but because we can’t agree on basic definitions. It’s a self-inflicted wound to America’s financial innovation legacy.
When Politics Stopped: The Surprising Consensus on Crypto's Future
In a city where Democrats and Republicans rarely agree, the rountable revealed a surprising unity. Beyond the walkouts and posturing, those who stayed forged a consensus: the current regulatory system is broken, and America must act.
The defining moment came when Chairman Johnson asked the five witnesses: “Does the absence of a clear regulatory regime harm consumers, investors, and innovation?” All answered “yes” without hesitation. Every witness, despite their diverse backgrounds and perspectives, answered “yes” without hesitation or caveats—a resounding agreement that the status quo fails everyone.
Both parties agreed that the regulatory framework must expand to cover spot markets, not overhaul what works. Daniel Davis noted the CFTC’s oversight of digital assets since 2014, covering 83% of the market’s derivatives. Bitcoin and Ethereum, long treated as commodities, guide billions in trading—a fact, not a debate.
Lawmakers favored the CFTC’s principles-based approach over the SEC’s rigid rules. Davis said CFTC principles foster “innovation and problem-solving” while protecting consumers. Representative Davidson called for “bright-line tests”—clear standards entrepreneurs could follow without legal armies. James Rathmell agreed, noting that every dollar and hour spent navigating legal uncertainty is time not spent building innovative solutions.
Remarkably, both sides aligned on who should regulate. Former CFTC Chairman Behnam, a Democratic appointee, and Davis, who served both parties, endorsed expanding CFTC authority. Republicans sought clear agency boundaries, not SEC dismantlement. Davis highlighted decades of CFTC-SEC cooperation on products like security futures, proving collaboration works with Congressional clarity.
Consumer protection concerns also bridged party lines. Democrats highlighted scams and fraud in unregulated markets, while Republicans worried that regulatory uncertainty was driving innovators overseas, leaving American consumers with fewer options and weaker protections. Both concluded that federal regulation would outperform the current patchwork, which bad actors exploit.
Even on the divisive issue of Trump’s crypto holdings, common ground emerged. Democrats focused on ethical violations, but Republicans didn’t defend Trump’s actions. Instead, they argued that better regulation could prevent future conflicts of interest. When pressed by Democrats on ethics, Behnam emphasized that upholding integrity in financial markets is critical to maintaining America’s appeal to global investors.
Witnesses reinforced this unity. Hiro’s Alex Miller said regulatory uncertainty drives innovation offshore. Coinbase’s Greg Tusar argued clear rules benefit innovation and consumers. Rathmell described founders turned “armchair lawyers.” These issues, nonpartisan, affect all lawful operators.
The real divide wasn’t between left and right, but between those engaging with policy and those favoring political theater. Republicans and Democrats who stayed nodded in agreement on the need for clear token classification, robust consumer protections, bringing innovation back to American shores, and acting before other nations gained a permanent edge.
As the meeting closed, Chairman Steil captured the bipartisan sentiment: this was about ensuring “innovation and development occur in the United States,” a goal that transcended party politics. Both sides recognized that America faces a stark choice—not between regulatory philosophies, but between coherent rules that foster responsible innovation and watching the future of digital finance develop elsewhere, leaving Americans trapped in a maze of conflicting jurisdictions and unclear guidance.
In a divided era, the roundtable offered hope: faced with a choice between leadership and decline, both parties found common ground. The question isn’t whether to regulate but how—balancing innovation, protection, security, and competition to keep America at the forefront of financial technology.
Democrats: Ethics, Trump & Consumer Protection
Democrats zeroed in on preventing systemic abuse, particularly by Trump. Congressman Lynch, with prosecutorial precision, detailed how the Trump family’s $2.9 billion in crypto holdings—nearly 40% of Trump’s wealth—created rampant conflicts of interest. “Between his meme coin governance token and USDI stablecoin, where 75% of proceeds go to the Trump family, every detail of his dealings screams conflict,” Lynch said.
Democrats painted a vivid picture of a president turning the Oval Office into a crypto marketing hub, offering private dinners at his golf club for the top 220 investors in his meme coin and White House tours for the biggest holders. They highlighted a $2 billion business deal with an Abu Dhabi investment firm that would directly benefit Trump’s crypto ventures. As Lynch warned, this created “a mechanism by which foreign interests can influence our president,” posing a threat to American sovereignty.
Yet, existing legal frameworks could apply. The Constitution’s Emoluments Clause bars federal officials from accepting foreign payments without Congressional approval, and anti-bribery statutes prohibit exchanging official actions for value. Congressman Liccardo’s Modern Emoluments and Malfeasance Enforcement Act (HR 1712) aims to explicitly prohibit federal officials from issuing or promoting digital assets, addressing gaps in current laws.
Democrats also championed crypto’s potential for social good. Congressman Figures emphasized financial inclusion, noting that “cryptocurrency can offer financial freedom and access to resources, especially for marginalized communities.” They stressed robust oversight, particularly around Anti-Money Laundering (AML) and Know-Your-Customer (KYC) standards. McLean Delany warned that “the dark web enables human trafficking, money laundering, and other illicit activities,” advocating for strong AML frameworks in any new legislation.
Republicans: Clarity, Decentralization and Exceptionalism
Republicans emphasized enabling innovation, believing clear rules would secure America’s financial technology leadership while upholding liberty and enterprise. Chairman Steil warned that without legislation, “we’ll be out-competed by countries like China.” Republicans saw the bill as infrastructure, enabling “innovators in dorm rooms and basements, not boardrooms and law firms,” to shape the future.
Representative Dusty Johnson grounded the discussion with real-world examples, citing Mark, an Oklahoma cattleman who co-founded CattleProof to improve livestock markets, and Mike Horton, a California engineer behind GeoNet’s precision mapping networks. “Without tokens, the blockchain wouldn’t work, and neither would CattleProof or GeoNet,” Johnson said, underscoring how regulatory uncertainty threatens tangible innovations benefiting rural communities.
Republicans saw regulatory chaos as a threat to U.S. dominance. Congressman Nunn noted the U.S. is “practically alone among G20 nations” without clear crypto rules, ceding ground to Singapore and the UK. Witnesses agreed, with one saying, “The U.S. is one of the only G20 nations without clear rules.” For Republicans, this risks losing control over money, contracts, and digital infrastructure.
They argued that proper regulation could enhance decentralization by making digital assets more accessible and trustworthy. Greg Tusar noted that digital assets’ unique features, like instant settlement, reduce risks compared to traditional securities, enabling innovative regulatory approaches that preserve decentralization while ensuring consumer protection.
But they warned against regulatory overreach. Congressman Davidson likened self-custody rights to the Second Amendment, stating, “The right to keep and bear arms shall not be infringed.” He argued that self-custody deserves similar constitutional protection, pushing for stronger language in the draft bill—“may not prohibit, restrict, or otherwise impair”—to prevent replacing one set of middlemen with another.
Key Recommendations from the Digital Assets Hearing
The meeting revealed surprising bipartisan agreement on the need for comprehensive digital asset regulation. Both parties and expert witnesses aligned on consumer protection, innovation, and American competitiveness. However, the dramatic walkout over Trump's crypto holdings highlighted how political theater could sideline substantive policy work.
While there is substantial consensus on the technical aspects of regulation, the challenge will be whether Congress can set aside partisan grievances to pass meaningful legislation—or whether political posturing will sideline or water down potentially helpful regulation that both sides acknowledge is desperately needed.
The hearing emphasized that comprehensive federal legislation is essential to replace the current fragmented and contradictory regulatory environment that's driving innovation offshore.
Pass comprehensive federal digital asset legislation to replace the current regulatory patchwork
Build on FIT21 foundation with the new market structure discussion draft
Establish clear federal preemption of state-level regulations to create national consistency
Create fit-for-purpose rules specifically designed for digital assets, not shoehorned into existing securities/commodities frameworks
Witnesses and members agreed that expanding CFTC authority while maintaining clear boundaries between agencies would fill dangerous regulatory gaps.
Expand CFTC authority to cover digital commodity spot markets (not just derivatives)
Maintain dual registration system between SEC and CFTC where entities operate in both spaces
Avoid creating regulatory gaps through deferrals or notice-only filings between agencies
Provide clear, quantitative jurisdictional boundaries between SEC and CFTC authority
The lack of clear token classification standards was identified as perhaps the single biggest barrier to innovation and compliance in the digital asset space.
Establish "bright line" tests for determining securities vs. commodities classification
Create objective, workable standards that replace the current 60-factor test
Allow evolution from securities to commodities as projects decentralize
Ensure all market participants reach same classification conclusions for same assets
Both parties emphasized that proper regulation actually enhances consumer safety rather than creating bureaucratic barriers.
Implement comprehensive AML/KYC requirements for centralized intermediaries
Require robust customer asset segregation and protection standards
Establish federal custody standards while allowing state pathway options
Create integrated market surveillance to prevent fraud and manipulation
Republicans particularly stressed that regulation must preserve the decentralized, self-sovereign nature that makes digital assets uniquely valuable.
Protect self-custody rights with strong constitutional-level protections
Allow integrated platform operations (trading, custody, settlement in one entity)
Enable programmatic token sales without treating as securities transactions
Create safe harbor for open-source software developers from third-party liability
Witnesses favored the CFTC's flexible, principles-based approach over rigid rules that could quickly become obsolete as technology evolves.
Use principles-based regulation (like CFTC model) rather than prescriptive rules
Ensure adequate funding for expanded regulatory mandates
Require public education programs about digital asset risks and opportunities
Establish clear off-ramps from registration requirements upon decentralization
The testimony revealed that current securities exemptions are poorly suited for digital assets, creating unnecessary barriers for legitimate fundraising.
Create digital asset-specific exemptions for token offerings
Reduce compliance costs for early-stage projects
Establish appropriate disclosure requirements that evolve with project lifecycle
Enable efficient secondary market trading for legitimate projects
Despite jurisdictional differences, witnesses emphasized that SEC and CFTC cooperation has worked well historically and should continue.
Institutionalize SEC-CFTC collaboration on digital assets
Allow portfolio margining and netting across agency jurisdictions
Maintain technology innovation offices (like LabCFTC) for industry engagement
Create unified approach to enforcement while preserving agency specialization
The consistent message was that delay in acting means ceding American leadership to countries that have already established clear regulatory frameworks.
Act quickly to prevent further talent/capital flight to other jurisdictions
Establish U.S. leadership before other countries gain permanent advantages
Address immediate consumer protection gaps in current unregulated markets
Provide regulatory certainty to encourage domestic innovation and investment