One of the biggest unknowns for the future of crypto is how it will be regulated. If the regulations are too onerous, crypto advocates will claim that the crypto industry will simply leave the US.
If regulations are minimal, crypto naysayers will argue that consumers will not be protected from crypto's vicissitudes.
However, articles in both the mainstream and crypto publications gloss over the regulatory process. Anyone interested in understanding regulations should understand the process by which regulations are created.
I have experience in Washington, DC as an attorney with a regulatory agency and on Capitol Hill with a congressional committee.
Here is how it works.
Departments and agencies in the executive branch, such the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), have legal authority to write regulations if they received regulatory ("rulemaking") authority through legislation enacted by Congress.
President Biden issued an executive order on March 9, 2022 requiring a multitude of the executive branch agencies to study crypto issues and report back to the President with their findings. Essentially, he asked them to recommend what explicit authority they need to regulate the industry.
It is likely that many departments will ask for additional authority and more funding.
After the administration resolves the turf battles, lawyers in the White House and departments will work closely with select members of the House and Senate to draft legislation (bills) that will work its way through the legislative process.
There will be hearings in subcommittees and full committees in the House and Senate. This could culminate with the passage of legislation that will be sent to the President for signing.
After the president signs the bill, it becomes law. There will be provisions in the law granting rulemaking authority to the departments and agencies.
They will go through the regulatory process of issuing a proposed rule and inviting comments from the public.
The "public" will include interest groups representing crypto exchanges, crypto miners, stablecoins, NFT creators and exchanges, banking, finance, environmental groups, consumer protection, and others.
The agencies will review the comments, group them into categories, and publish their response. The agency may then jump to issuing a final rule or an interim final rule.
When the final rules are published, they have the power of law which can be enforced, civilly or criminally.
Trade associations unhappy with the the final rule will likely file lawsuits claiming that the agency exceeded its authority and that the rules are not enforceable.
Once the regulations are in place, agencies will often write policies and guidances which will address issues that were inadequately explained or not anticipated in the regulations.
The entire process from Biden's mandated crypto reports to legislation and then final agency rulemaking will take at least two to three years.
However, this does not mean the agencies must sit on the sidelines. They will attempt to use their existing authority to issue rules. Likewise, President Biden may issue executive orders to regulate some aspects of the industry.