The Breakdown - Democrats Stage Crypto Walkout to Hold Dueling Hearing

Episode Date: May 8, 2025

Yesterday's Congressional crypto hearings descended into partisan theatrics as Democrats led by Maxine Waters staged a dramatic walkout, splitting discussions into dueling roundtables. At issue: allegations of presidential crypto-related corruption versus critical bipartisan efforts to establish regulatory clarity for crypto markets. NLW breaks down the political maneuvers, highlights the substantive points lost in the spectacle, and explains why this standoff could jeopardize crucial legislative progress. Will partisan gamesmanship stall sensible crypto regulation, or can Congress find common ground before the industry loses its momentum? Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Wednesday, May 7th, and today we are talking about dueling crypto hearings. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Well, friends, yesterday saw not one but two crypto hearings in Congress after Democrats followed through with their threatened walkout. On the docket in the House Financial Services Committee had been a hearing to discuss the new market structure bill we covered on yesterday's show.

The session was a joint hearing with the House Ag Committee that has oversight of the CFTC and a stake-informing crypto legislation. These hearings, believe it or not, do play an important role, allowing the committee to ask the opinions of experts before making decisions on the final amendments to complex and important legislation. They also very frustratingly sometimes provide a bully pulpit for people to score their cheap points, but what are you going to do? Alas, Democrat ranking member Maxine Waters decided not to avail herself of the positive opportunities of these sessions, leading a walkout of the hearing. As the session got underway, Waters remained standing. When called upon, she said, I object to this joint hearing because of the corruption of the president of the

United States and his ownership of crypto. Now, joint hearings require unanimous support, so Waters was hoping to derail the hearing by objecting. Republican Representative Dusty Johnson had sought to understand the basis of the objection and offered to, quote, work in good faith to remove the problem. Johnson made the point that, quote, good regulatory rules of the world, I think would provide an environment where people would have more faith in the marketplace. I think these conversations are a critically important part of getting there.

Chairman French Hill was far less magnanimous, stating, I want to be really clear and set the record straight today. Through her actions, the ranking member has thrown partisanship into what has historically been a strong, good, working bipartisan relationship. He commented that a very similar joint hearing had been held on the market structure bill in 2023 and said that the hearing had brought out overwhelming support, his words, from both sides of the aisle to bring crypto into the greater regulatory perimeter and close gaps. He'll continued, gaps that President Biden agrees exist, gaps that President Trump agrees exist. Members worked hard to provide robust consumer protections,

and they did so in a manner that would make our constituents proud. We left our differences at the door and we were honest and transparent in our legislative work. He revealed that Waters had actually engaged on this hearing for weeks and even negotiated to include an additional witness. Winding up, Hill commented, hearings are an opportunity for Congress and the American people to explore important matters of policy together, whether we agree or disagree on policy. By objecting to this hearing, the ranking member is undermining the opportunity for these two committees to engage in a conversation of vital importance to the American people. That's a loss for our committees, the House, and the public at large. Now, the actual walkout itself was pretty spark.

with representatives Lynch, Sherman, Foster Garcia, and Kasten joining waters in a separate room down the hallway. None of the Democrat members of the Ag Committee participated in the walkout. Former CFTC chair Timothy Massad joined the Splinter Group as a witness. Interestingly, the most recent CFTC chair, Rosten Benham, elected to stay behind and speak in the original bipartisan hearing. Both groups ended up holding separate hearings as informal roundtables, somewhat blunting the impact of the walkout. The entire stunt was frankly just pretty stupid. I think what it showed shows more than anything, is that Democrats believe that lumping in crypto with all of their general Trump acrimony is good politics. In other words, I don't really think it has anything to do with

crypto. I think it has to do with guilt by association. Now, the partisan Twitter accounts for each side of the committee traded Twitter pot shots throughout the day. Brendan Peterson, a political reporter for Punchbowl news commented, Congressional committee conflict is approaching a level of pettiness I haven't seen in a minute. Austin Campbell, a stable coin expert and professor at NYU Stern, objected to the theatrics of the whole thing, tweeting, this is exactly the sort of grandstanding on both sides that needs to stop. Politics is not a ninth grade theater bit. Americans are being ripped off by banks and subjected to unfair treatment daily.

Can't figure out why young people abandon the Dems? Start here. Fix things. Colin McLaren, a Harris campaign staff return Solana Policy Institute director pointed out that the average age of Democrats that walked out was 70. He reiterated a comment made recently by Democrat Representative Richie Torres that, quote, support for crypto isn't partisan, it's generational. In what will be a shock to exactly no one listening, the actual substance of the dueling roundtables was pretty lacking. The Democrat roundtable was largely about raging against Trump's crypto ventures. In the main hearing, meanwhile,

some witnesses acknowledged that they hadn't read the bill. Maybe reasonable given the 212-page tome had only been released the previous afternoon, but also perhaps suggesting that the hearing might have reasonably been postponed. Many of the questions were simply variations on the point that crypto legislation is indeed necessary. Most agreed, the CFTC is the appropriate regulator for large sections of the market. Down the hallway, former CFTC Chair Massad made the point that the SEC and CFTC should work together to establish an industry self-regulatory organization, similar to the ones that exist in other parts of the financial industry.

The question of how to differentiate between securities and commodities in the crypto markets, i.e. an important question, wasn't covered in any great depth. One bright spot was around self-custody, with some Republicans pointing out that the current text just says that self-custody can't be prohibited. They suggested that this language should be strengthened to shall not be infringed to prevent onerous regulation making self-custody impossible. Still, overall, generally, the roundtables were a bit of a bust. The upshot of the Democrats' splinter discussion was the release of a new draft bill to ban government officials from participating in crypto. It specifically referred to the offices of the president, the vice president,

and members of Congress alongside their immediate families. The prohibition would be broad, covering owning crypto, serving as leadership for a digital asset issuer, or receiving compensation from crypto market activities. The bill, of course, is not going anywhere in a Republican-controlled Congress, but obviously that's beside the point for what amounts to a political stunt. Watching the proceedings law student dancing Eddie tweeted, what a hilarious disaster this is. There are two concurrent discussions going on within the same building on the same bill. On one hand, there is a moderately bipartisan, mostly Republican discussion ongoing that is actually discussing how much weight the CFTC should have. On the other, Democrats are elaborated,

upon the, in fairness, pretty serious self-dealing concerns related to the Trump family investments. These meetings are both live and basically down the hall from each other. So what is the takeaway from all of this? One could argue that Waters robbed the American people of an opportunity to witness a debate on how to regulate crypto, but that was clearly never going to happen yesterday. Neither representatives nor witnesses had read the bill and were barely capable of discussing the thorny issues that need to be worked out. Waters dominated the news cycle and made her point, but very little was actually achieved. Obviously, no crypto legislation can move forward if the two-part won't come together and actually do something. Zach Guzman of Coinage Media tweeted,

was anyone else in crypto pointing out that Trump pumping his own crypto projects would inevitably come at the expense of the rest of the space? Arguably just cost crypto five years of bipartisan legislative progress. Now, what's ironic to me is that I actually think that there would be huge bipartisan support for the type of self-dealing bill that the Democrats came up with in their other splinter hearing. Regular people on both the Republican and Democrats out of the aisle do not like public officials making a bunch of money from their privileged knowledge. It's the case with stocks and it's the case with crypto. These things are not mutually exclusive. Writing a bill that says presidents can't own crypto, or at least can't be involved in these sort of

self-dealings, is not in any way mutually exclusive from just general crypto legislation. But of course, it doesn't feel like it's really meant to address issues. It's meant to score political points. Now, to take the silver linings from an eventful day in Washington, we just got a headcount on the anti-crypto army and the ranks are very thin. Only four Democrats joined Waters in the walkout out of 24 on the Financial Services Committee. None of the House Ag Democrats joined in. Although she's the ranking member, Waters, in other words, seems to represent the minority view. Next few months are going to be critical in getting this legislation passed, and it's not super clear that Congress will get another good shot in the future.

Let's hope enough Democrats come to the table and put the need for sensible crypto rules above the partisan muck of Washington. Meanwhile, Bitwise, CIO Matt Hogan has warned of difficulties in the market if Congress can't get crypto legislation over the line. In a research note published on Monday, he said he's increasingly concerned that Congress will fumble the ball at the one-yard line, his words. Hogan forecast a difficult summer for the industry in crypto markets if legislative efforts in Washington fizzle out. Hogan commented that the entire basis of the winter rally was that the new administration would bring clarity to the space and allow builders to get back to building. We have, of course, had some wins with the Bitcoin

Strategic Reserve executive announcement, the SEC unwinding enforcement, and the end of Operation chokepoint 2.0. But ultimately, even those things can't compete if the industry doesn't come out of this year with clear rules laid out by Congress. And that is specifically the case for all of these new institutional players who want to be involved at an even deeper level. Hogan wrote, To move crypto forward, we need Congress to pass legislation enshrining crypto's progress in law. Congress passing at least one crypto bill would show that Democrats and Republicans can align on crypto and make it more difficult for future regimes to undo progress.

In the note, Hogan reflected on his expectation that the Stable Coin bill would breeze through Congress earlier in the year. He commented that it seemed like a win-win-win, opening a new profit center for Wall Street, adding another large buyer of U.S. Treasuries, and bridging the gap between the crypto ecosystem and TradFi Rails. Since then, however, we've seen the banking lobby come in to oppose the bill, pushing for strict requirements that keep stablecoins within the banking system. More recently, we saw Democratic support collapse, with Senate Minority Leader Chuck Schumer reportedly pulling his support behind closed doors.

Stablecoins should have been the easy lift. There was strong bipartisan support for all of the common sense provisions like reserve requirements, auditing standards, and clarity around bankruptcy resolution. The only real daylight between the parties was on whether the Federal Reserve should have final approval on granting licenses to issue stable coins. However, over the past week, it seems that Democrats have been unable to reconcile the need to pass this sort of legislation with the fact that the Trump family is involved in crypto. Republican Senator Bill Hagerty has even suggested he might scuttle the bill to make a political point. In response to the weekend reporting, he posted that Democrats have two options. Move forward and make any remaining changes

needed in a bipartisan way, or show that digital asset and crypto legislation remains a solely Republican issue. Hogan wrote, The change in tune reflects the shifting political environment in Washington. The amended version of the bill is actually stronger on AML KYC and other items than the version that passed out of the banking committee, suggesting that Democratic about-face has more to do with President Trump's slumping approval rating and his rising chatter over his crypto-related conflicts of interest than any substantive concern. He also commented that crypto-lobbing efforts splintering or not helping the cause. It was widely reported that Coinbase was pushing to combine stablecoins with market structure to push one big bill. The logic there was that after getting

the low-hanging fruit of stable coins done, congressional Republicans might not have the political capital to move a separate market structure bill. Critics of the strategy, however, said that it risk coming away empty-handed from a hard-won crypto-friendly Congress. Hogan came down on the side of the critics writing, this is the perfect becoming the enemy of the good. Market structure legislation is extremely important to crypto's long-term future, but lumping things together will make the passage of any bill more difficult. Lastly today, a brief update on the stable coin bill. Senate leader John Thune filed for Clocher on the Genius Act on Tuesday evening the first step towards putting it to a floor vote. The next step is a procedural vote on Thursday that will require bipartisan support to avoid

the filibuster. Finance lawyer Scott Johnson tweeted, less than 48 hours, much is about to be revealed about the political dynamics in D.C. regarding crypto. Bill Hughes of Consensus is pretty convinced this is going through despite Democrat support falling away, responding, it'll happen. from Politico is that Thune and other GOP senators are working the phones to drum up support from across the aisle. They write, staffers have been meeting behind the scenes to come to an agreement on language that would be able to clear the 60-vote threshold required for it to advance on Thursday. Republican Senator Kevin Kramer commented that it, quote, sounds like they're getting close to recovering the momentum. One of the pieces of intrigue here is that Senate leader Chuck Schumer

was reportedly against the bill in its current form, however he didn't go on the record to resist the bill in the open letter published last weekend. Senator Cynthia Lummis commented, I think he sincerely wants to get something done. I think he's still of a mind to get something done, so we're just going to keep working on it. Freshman Senator Ruben Gallego was the face of Democratic resistance. Many noted he was elected on the back of millions and donations from crypto-lobbyist Fairshake, so he's likely been fielding angry calls from his donors all week.

A new wrinkle is emerging from the Republican side of the Senate as the bill moves out a committee, however. Senator Rand Paul has said he's leaning towards voting against the bill, stating that it contains too many onerous restrictions that could hurt the industry long term. Senator Josh Hawley is a maybe, objecting to the idea of large tech firms being able to issue stable coins, and Senator John Kennedy, who voted for the bill in the banking committee, said that he can't make a call until he sees what the final text looks like. He said, it's changed a lot, and they're making deals all over hell and half of Georgia. Until I understand

what those deals are and how the bill has changed, I'm not on board. In other words, compromising too much with Democrats could cause the Republican vote to collapse. The bill needs seven of the 45 Democrat senators in support assuming every Republican senator is a yes. Not impossible, but boy, does it sound like there's a lot of horse trading to be done between now and Thursday's vote. That, however, is going to do it for today's breakdown. Appreciate you listening, as always. And until next time, be safe and take care of each other. Peace.