Crypto venture capitalists are seeing a “change in political tenor” in the United States but still anticipate that the November presidential election’s results could have major implications for the industry.
The improved atmosphere surrounding crypto companies was apparent during the swift approval of spot Ether (ETH) exchange-traded funds in May. At the time, the market’s confidence in getting the green light from regulators rose from 6% to effectively 100% in a matter of two weeks.
Another major move came from Congress. Also in May, the House of Representatives passed the 21st Century Act (FIT21) with bipartisan support. The bill seeks to clarify government agencies’ role in regulating digital assets, a long-overdue demand from crypto companies.
There are signs of a more level playing field for digital assets following a prolonged crackdown on companies and their founders. However, the industry may need more time.
Cosmo Jiang, managing partner at Pantera Capital, has witnessed many blockchain-based businesses move overseas in recent years.
“In fact, many entrepreneurs within our network have approached us asking whether to move overseas or have already proactively done so. It is so sad that we have lost out on a generation of talented entrepreneurs and their valuable ideas,” Jiang told Cointelegraph.
Among the recent companies targeted by the country’s unclear regulatory landscape is Consensys, the parent company of self-custodial wallet MetaMask. In a June 28 complaint, the Securities and Exchange Commission (SEC) said the company has been operating as an unregistered broker and engaging in the sale of unregistered securities since 2020, while Consensys argued the agency “has not been granted authority” to regulate software interfaces like MetaMask.
“The lack of regulatory clarity and the dissonance between the different branches of government [...] causes an important overhang in the market,” said Carlos Pereira, partner at Bitkraft Ventures. The executive sees positive developments for the industry but cautioned that hurdles are still in place:
“Although currently crypto is being talked about in a more positive light in both campaigns, one side has felt more ‘reactionary’ in their shift, only turning positive after it became more popular (in particular with donors), and only going so far in their support. So, we do think that different election outcomes can have different consequences.”
Related: FIT21 bill a ‘watershed moment’ for crypto despite CFTC-SEC friction
No contingency plans
Despite uncertainty over the presidential election’s impact on the industry, venture firms aren’t working on contingency plans. Instead, investors are looking at new business trends and the convergence of technologies, such as artificial intelligence and blockchain.
“There aren’t ‘contingency plans,’ but of course, we recognize the volatility and diverging policy outcomes that are possible,” said Pereira, adding that the election results could impact the size and speed of possible changes for digital assets in the United States, such as the potential passage and enaction of the FIT21 bill.
The regulatory environment for tokens could see a shift under FIT21, with the definition of what constitutes a security versus a commodity affecting how tokens are regulated. Specifically, the bill stipulates that digital assets may fall under the jurisdiction of the Commodity Futures Trading Commission. Otherwise, they could be considered securities under SEC oversight.
If approved, the bill could allow many blockchain-based businesses to organize using tokens instead of equity, explained Pantera’s Jiang, adding :
“The FIT21 bill will undoubtedly go through many changes before the final version is put in place, but it is an important first step toward creating a regulatory framework whereby tokens with real business models can appropriately register with regulators.”
It may take several months for the Senate to review the FIT21 bill. SEC Chair Gary Gensler previously criticized the bill, arguing that it introduces “new regulatory gaps” and poses risks to the stability of capital markets.
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