Crypto Legislation Faces Delays as U.S. Lawmakers Focus on Election Year Priorities

As the 2024 election season intensifies, crypto regulation efforts in the U.S. Congress are facing delays, with lawmakers focusing on other pressing issues. According to a report from investment bank TD Cowen, significant crypto legislation is unlikely to pass before the end of the year. However, stablecoin legislation remains a potential bright spot in an otherwise bleak outlook for the crypto industry.

Lawmakers on Recess, Limiting Legislative Opportunities

U.S. lawmakers are currently on recess and will not reconvene until after the November elections. This leaves only the "lame-duck" session — the brief period between the election and the start of the new Congress in January — to pass any remaining bills. TD Cowen's Washington Research Group analyst Jaret Seiberg is skeptical about the chances of major action during this short window, particularly for crypto legislation.

"We are pessimistic of major action during the session between the election and the swearing-in of the new Congress in early January," Seiberg said in a note released Monday.

Lawmakers will also be preoccupied with higher-priority issues, such as passing legislation to fund the government and the National Defense Authorization Act (NDAA), leaving little room for crypto-related bills.

Stablecoin Bill Has Best Chance for Passage

While broader crypto legislation may face challenges, a bill regulating stablecoins could move forward under a "best case scenario," according to Seiberg. This bill, which has been in the works since 2022, seeks to establish a regulatory framework for stablecoin issuances.

House Financial Services Committee Chair Patrick McHenry (R-NC) and the committee's top Democrat, Maxine Waters (D-CA), have been leading efforts to create this framework. The legislation passed the Republican-controlled committee last year but stalled due to disagreements, including a provision that would allow state regulators to approve stablecoin issuances without input from the Federal Reserve. Waters initially called the bill "deeply problematic" but has signaled that a deal could be within reach. During a recent congressional hearing, she expressed optimism about striking "a grand bargain on stablecoins" with McHenry.

"If leadership on both sides wants a deal, this is the package that is ready for action," Seiberg noted, pointing to the potential for progress on stablecoin regulation despite broader setbacks.

Sherrod Brown's Senate Race Complicates the Crypto Outlook

The upcoming Senate race in Ohio adds another layer of complexity to the prospects for crypto regulation. Millions of dollars are being funneled into the race to unseat Senator Sherrod Brown (D-OH), the chair of the Senate Banking Committee, which plays a pivotal role in the passage of crypto bills. Brown has been a vocal critic of the crypto industry, and his race against crypto-friendly Republican Bernie Moreno is being closely watched.

Polls suggest a close contest, with Brown leading at 47% and Moreno at 44.3%, according to FiveThirtyEight. Political action committee Fairshake has pledged $12 million to defeat Brown, largely due to his stance on crypto.

However, Seiberg warns that efforts to oust Brown could backfire on the industry. If Brown retains his seat, Democrats may be less inclined to push for crypto-friendly legislation. "It is hard for us to see why Brown would want to reward crypto by letting any of their priorities become law," Seiberg remarked.

In a "worst case" scenario, Democrats could retaliate by delaying crypto bills, including stablecoin and market structure reforms, until 2026.

Conclusion: A Limited Path Forward for Crypto in 2024

While stablecoin legislation has a potential path forward, the broader outlook for crypto regulation in the U.S. remains bleak in the near term. Lawmakers are prioritizing more immediate concerns, and political dynamics, such as Sherrod Brown's Senate race, could further complicate the crypto industry's legislative agenda. For now, it appears that comprehensive crypto regulation will have to wait until 2025 or later, leaving the industry in limbo for the foreseeable future.