In July 2022, the Financial Stability Board (FSB), an international financial watchdog, stated that they would present recommendations on cryptocurrency regulation later in October to the G20 Finance Ministers. This came after a downturn in the market, among regulatory advances in various regions on stablecoins.

However, as cryptocurrency is still a relatively young market, crypto regulation has not developed as quickly as the technology has. In fact, many investors find the lack of regulation appealing and attribute growth to light regulation.

As Chief of Staff at Pantera Capital, Emma Rose Bienvenu works on investment initiatives, portfolio projects, and executive hiring, as well as legal issues for companies that need to navigate a changing regulatory landscape.

On Working with Crypto Regulation Policymakers

“I don’t consider it lobbying; I don’t have an agenda going in…I view my role much more as helping to educate policymakers,” Bienvenu says.

Bienvenu addressed the importance of policymakers learning about the space, saying, “There’s such a lack of understanding on the part of the regulators and elected officials on just how the tech works,” in a Road to Consensus discussion in April 2022. This is reflected in new solutions, as many of them lack practicality from the creators of the solutions not understanding the technology. 

Often, discussions begin with a regulation idea, yet the challenge is exploring how they would play out in practice, and the policymakers need to go back to the drawing board to create something more enforceable or feasible. Since her approach doesn’t come from a specific agenda, Bienvenu’s main priority in the process is to be useful and understand what parts of policy are causing difficulties and need help with tackling. 

Depending on what it is, she may have a sense about what they’re thinking about in their perspective. “It’s valuable to have someone that both has a deep understanding of how the tech operates and how the ecosystem works and also has a legal background to ‘speak regulator,’” she says. 

On Crypto Lobbying 

There have been many other approaches to spark these relationships with the government. After the infrastructure bill was passed, crypto spaces began lobbying efforts in Washington to create an electoral incentive for lawmakers. FTX co-founder and CEO Sam Bankman-Fried has spoken in multiple Congressional hearings about the future of cryptocurrency and how the space should be regulated. 

His main lobbying ambition is for the U.S. Commodity Futures Trading Commission (CFTC) to have more oversight over cryptocurrency, as opposed to the U.S. Securities and Exchange Commission (SEC). 

With Bankman-Fried’s financial efforts over the years, this may become a reality in the near future. In early June 2022, Sen. Cynthia Lummis (WY), known as one of the most staunch supporters of crypto in Congress, and Sen. Kirsten Gillibrand (NY) introduced the Responsible Financial Innovation Act, a regulatory framework that would treat most digital assets as commodities under CFTC oversight.

Crypto lobbying as a whole has skyrocketed in the past few years. According to a report by Public Citizen, spending more than quadrupled from $2.2 million in 2018 to $9 million in 2021. The number of lobbyists representing the industry almost tripled in that same time period. Of all the industry sectors, crypto is the second highest industry donor to midterm races after the traditional finance sector, according to Bienvenu.

Bienvenu highlights a reflexive assumption that any crypto institution that’s doing policy advocacy and lobbying is a great thing. For example, consider a situation where large crypto incumbents may lobby for burdensome regulations because they know their competition won’t be able to comply. Thus, it’s crucial to maintain a nuanced perspective as the industry matures. 

Although her role at Pantera includes the aforementioned policy aspect, Bienvenu notes that it’s not surprising to see the trend of conflicts between crypto spaces and regulators. Crypto companies have had their fair share of challenges with navigating regulation in this novel space, playing the dual role of guinea pigs and educators for the regulators. Bienvenu highlights this by saying, “there was a period…up until recently, where you had the regulators speaking about crypto in a condescending and belligerent tone, and then in practice, often behaving in a way that verges on bad faith: for example, asking projects to come in and explain what they’re up to, and using what they say in those meetings as kind of fodder for enforcement actions.” 

“That has an incredibly strong, chilling effect on projects actually being willing to engage with the government whatsoever because they feel like they’re putting themselves in jeopardy,” she remarks. 

On the Future of Crypto Regulation

At Paris Blockchain Week Summit, Binance founder and CEO Changpeng Zhao said, “The tide is definitely turning,” following several efforts by the U.S. government to regulate stablecoins and DeFi the past year.

Similarly, co-founder of Blockchain.com Nicolas Cary said, “The regulatory landscape around the world is coming up to speed quickly,” adding that the U.K. could have a unique approach considering the government announced plans to issue a non-fungible token (NFT).

As for Bienvenu, she believes there are many worthwhile discussions to be had in the regulatory aspect, but stablecoin regulation is high on the list because it is anticipated to be the next piece of legislation on the agenda. Where the winds will blow is highly dependent on the perspectives of the SEC Commissioners. 

Looking at how to move policy discussions forward, Bienvenu says, “It’s incumbent on asset allocators that have less of a specific policy agenda to help their project, but rather have a balanced portfolio covering the whole ecosystem to be a much more neutral source of information and also not expose ourselves legally in a way that projects might.”

Pantera Capital covers the entire blockchain ecosystem through its early investments. As a long-time pioneer in crypto fund activity, the institutional asset manager launched the first U.S. bitcoin fund and the first blockchain-focused venture fund. Pantera’s co-CIO Joey Krug brings a unique perspective to navigating emerging markets and legal strategy, having launched prediction market Augur, one of the first decentralized applications built on Ethereum.

When asked about trends she’s noticing, Bienvenu highlights the “protracted failure of regulators to provide a safe harbor or clearer guidance across different areas that are relevant to crypto.” This means that many building in the space have no assured avenue that they know is 100% compliant with current crypto regulation. 

“Because of that, I’m seeing a lot of projects come to the conclusion that the best defensive strategy is to decentralize them as quickly as possible,” she says. With this tendency, Bienvenu believes we could reach a point where crypto regulation can’t be practically enforced because there’s no single person controlling or directing the organization. She mentions Ethereum as an example, referring to Gary Gensler, the current SEC chairman, and his predecessor, believing Ethereum was an unregistered securities offering when it launched. 

“One might ask, ‘Why haven’t they enforced?’ and I think the answer there is, ‘Who are they going to sue?’” Regulation wouldn’t be as simple as fining an individual and expecting them to change how the protocol operates because of how decentralized Ethereum is.

“When you reach a point where no one controls the protocol, it then becomes impossible to work out any policy agenda,” she says. “The regulators may not grasp the extent to which they are creating a future for themselves in which they are irrelevant.” Essentially, it wouldn’t matter how carefully considered crypto regulation policy is if it isn’t practical to enforce.

Ultimately, Bienvenu hopes that practices will be put into place before future discussions surrounding crypto regulation reach that point.

ABOUT IDENTITY REVIEW

Identity Review is a Web3 think tank dedicated to critical initiatives related to blockchain, security, and privacy. Want to learn more about Identity Review’s work in crypto regulation? Please message us at team@identityreview.com. Find us on Twitter.

ABOUT THE WRITER

Katherine Zhang is a contributor to Identity Review from the University of California, Berkeley.

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