Crypto ally Rep. Patrick McHenry fights for industry-backed regulation bill

WASHINGTON — One of crypto’s most powerful allies in Congress is fighting this week to make sure that an industry-backed regulation bill gets tacked on to the must-pass defense funding legislation.

If he is successful, Rep. Patrick McHenry’s (R-N.C.) hardball tactics could hand the cryptocurrency industry a big win. But they are frustrating his colleagues, on both sides of the aisle.

The bill is intended to clarify how crypto is regulated by federal agencies. It could also go a long way towards resolving a burning question in tech policy: Whether cryptocurrencies should be treated by regulators as commodities or as securities. The answer could impact U.S. regulation of digital currencies for decades.

But McHenry’s bill has never been put to a vote in the full House, let alone in the Senate.

Instead, McHenry, who chairs the Financial Services Committee, is pushing to attach his bill to the massive annual Pentagon funding measure the National Defense Authorization Act.

Congressional leaders are hoping to pass it before the end of the year, and the House and Senate are currently working to reconcile their respective versions into a single package that can win enough votes to pass both chambers.

McHenry’s crypto bill faces stiff opposition from key Senate Democrats, including Banking Committee chairman Sen. Sherrod Brown (Ohio).

“There’s no way we’re going to pass any industry written crypto bill,” Brown told CNBC Thursday. “It’s never going to pass, probably, the House. It certainly won’t pass the Senate.”

But McHenry has leverage. From his seat atop the Financial Services Committee, he has veto power over whether issues his committee oversees make it into the final bill.

As part of his campaign to get the crypto legislation added to the defense bill, McHenry is blocking several other amendments lawmakers want to add to the bill, including one addressing the fentanyl overdose crisis, according to four congressional staffers close to negotiations who were allowed to speak on background to candidly discuss negotiations.

Frustration over the holdup is hitting a high point.

There are signs McHenry’s effort might be losing steam, however. Rep. French Hill, an Arkansas Republican who also led on crypto bills, said the legislation was unlikely to get into a bill passed this year.

“I don’t anticipate it this year,” he said on CNBC’s Squawk Box. “I expect us to be successful in early 2024.”

Crypto isn’t the only issue McHenry is battling out in the defense bill. He’s also blocking a bipartisan provision that would require entities to notify the government if they make investments in national security sectors in adversarial countries like China or Russia.

McHenry has long been opposed to the measure, arguing that allowing U.S. companies to make investments gives them control and useful insight into the national security and technology capabilities of foreign companies.

Texas Republican Sen. John Cornyn, who sponsored the provision with Democratic Sen. Bob Casey of Pennsylvania, said Congress needed to set its own standards.

In August, the White House released an executive order mandating that the government be notified of certain outbound investments.

“Why would Republicans defer to the Biden Executive Order, rather than set its own rules?” Cornyn said Wednesday on X. “We need to rein in executive power.”

Rep. Mike Gallagher, a Wisconsin Republican who chairs the House’s select committee on the Chinese Communist Party, also objects to dropping the outbound investment bill from the final NDAA.

“While Congress dithers, we continue to fuel our own potential destruction,” he said in a statement Thursday. “I look forward to working with my colleagues on both sides of the aisle to rectify this national security goal.”

In the House, the Foreign Affairs Committee approved an even stricter version of the outbound investment bill on Wednesday, expanding the number of sectors what would trigger notification requirements.