Rear Adm. Grace Hopper was a remarkable person whom too few of us have heard of. Born in 1906, she graduated from Vassar College with degrees in mathematics and physics in 1928; by 1934 she had earned her Ph.D in mathematics from Yale. She enlisted in the Navy in World War II but was rejected because of her advanced age (34) and because her advanced knowledge of mathematics was needed elsewhere for the war effort. Instead, she joined the Navy Reserves and went to work on some of the first computers, eventually developing a computer coding language that evolved into COBOL. She stayed in the Navy more or less the rest of her life, with the help of an act of Congress specifically intended to allow her to stay despite mandatory retirement rules.
But Hopper’s most lasting contribution to popular culture is her adage: “It’s easier to ask forgiveness than it is to get permission.” The financial regulatory complex, which is in the early stages of wrapping its head around how to regulate cryptocurrencies and the markets they live in, seems to be doing precisely that.
The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. recently took baby steps toward such a framework with a bulletin telling banks to think twice before doing business with crypto firms. Fed Chair Jerome Powell has said that stablecoin regulation is a task for the central bank; the international Basel Committee on Banking Supervision has weighed in with its own guidelines for limiting the risk of crypto exposures; and acting Comptroller of the Currency Michael Hsu said this week that what crypto firms need is a consolidated home-country supervisor to detect and stop the kinds of shenanigans that brought down the benighted crypto exchange FTX. All of this activity seems to be pointing in one direction: While congressional input would be welcome and helpful, no one is waiting around for Congress to get its act together.
Nor, seemingly, should they. While crypto itself is undoubtedly new — or at least new-ish — crypto markets have analogues all over traditional finance. What roles the Securities and Exchange Commission, Commodity Futures Trading Commission, Fed and everyone else have to play in enforcing long-standing rules and norms against embezzlement and fraud can be ironed out, but fundamentally a scam is a scam — and scams are illegal.
There’s only one problem: The Supreme Court last year issued a ruling in West Virginia v. EPA that articulated something called the “major questions doctrine,” and sooner or later it is going to collide with whatever regulatory arrangement ultimately emerges over the next several years.
The major questions doctrine goes something like this: A regulatory agency cannot resolve or address “major questions” without the express authority from Congress to do so. It’s a twist on a similar theme, known as the “nondelegation doctrine,” which holds that there are certain powers and authorities that Congress can’t punt to administrative authorities to have them sorted out. What exactly makes a question “major” — and thus requiring a congressional directive — is itself a major question, but the hallmarks that the court held out involve high costs of implementation, political questions that Congress has failed to resolve, an incursion into the domain of state authority, or some combination of those things. Any crypto regime, no matter how well-reasoned, would likely meet that standard.
And whatever the crypto regime, no matter how well-reasoned, will undoubtedly cost someone — crypto exchanges, brokerages, banks or all of the above — a great deal of money. And while financial regulation is somewhat less litigious than, say, environmental regulation, there’s reason to assume that at some point down the road some aspect of that regime will be challenged in court, and there is likewise reason to assume that such a challenge might provide the court an opportunity to decide whether that regulatory regime is a major question.
I don’t presume to know the Supreme Court’s collective attitude about crypto, and at any rate the specifics of any court challenge depend on the specifics of whatever regulatory regime ends up being implemented. But without congressional action, any regime that regulators devise based on their existing authority will eventually have to be blessed or struck down by the court.
To be sure, there are several off-ramps that Congress, the administration and the court could take to stop that from happening. Congress, for its part, could pass legislation expressly placing crypto regulation in the hands of financial regulatory agencies. But prospects for meaningful legislation of almost any kind out of this Congress are decidedly dim, and while there are crypto bills floating around both chambers, a bipartisan, bicameral consensus on how to proceed remains elusive.
The administration could not regulate crypto, citing a lack of such authority (though, as mentioned above, that doesn’t seem to be the case).
Or the court could find some creative way to either say crypto isn’t different enough from traditional finance to warrant additional authorization, or isn’t a major enough question to require congressional authorization. But however the justices square that circle, the precedent such a ruling would set would either narrow the applicability of the major questions doctrine or erode the distinction between crypto and traditional finance altogether.
All of this is of course speculative and would take place several years from now, if it takes place at all. But it’s worth knowing that the Supreme Court seems to think the administration needs permission from Congress to regulate crypto. For the time being at least, the administration seems to think it’s easier to ask for forgiveness.