SEC Spokesperson If the government shuts down, litigation, as well as the review and approval of new products, will be temporarily suspended in possible situations.

SEC Spokesperson If the government shuts down, litigation, product review, and approval may be temporarily suspended.

Author: Jesse Hamilton, CoinDesk; Translation: Song Xue, LianGuai

The cryptocurrency industry in Washington is facing a critical moment, as an imminent budget impasse in Congress could result in a series of federal service shutdowns next Monday. However, experts say that the most important things for the digital asset industry will not be completely plunged into darkness, even if they are delayed longer than crypto companies would hope.

The industry’s most urgent needs from the federal government include the response from the US Securities and Exchange Commission (SEC) to the applications for exchange-traded funds (ETFs), progress on several key court cases, and the next obstacles in crypto legislation.

SEC Chairman Gary Gensler has warned that the agency will operate with the cooperation of “essential” staff during a government shutdown. This could determine the future of crypto ETFs, even though many of its court cases are progressing in a direction that could reshape the US crypto industry.

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A female spokesperson for the SEC pointed out that the agency is following its shutdown contingency plan, which has happened more than once, including during the Trump administration when the federal government shut down for 35 days. The plan states that the agency will halt litigation where possible, unless the situation poses a threat to consumer property, and will stop reviewing and approving new product applications.

For companies awaiting a decision from the SEC on bitcoin spot ETF applications, as well as companies like Binance currently in legal disputes with regulatory agencies, this sounds bad. However, those who have gone through this process believe that it may not completely hinder the industry’s development.

Anne Kelley, a former SEC official who now works at Mercury Strategies, said that while technically the SEC’s plan “only allows for actions necessary to prevent imminent risk of harm to investors, our markets, or property,” it has some budget flexibility in using reserved funds.

She said that in 2013, it “continued operations throughout the entire 16-day shutdown,” and in 2018, it continued operations during part of the record-breaking shutdown period.

“Whether the SEC has the necessary funding and whether they decide to continue operations, that will be an interesting thing,” Kelley said.

The hope in this situation is that most of the SEC’s investigations and enforcement activities will slow down, unless there is emergency intervention to save investors. This means that the agency is unlikely to continue sustained enforcement actions against crypto companies, providing a temporary respite for companies that have not yet become targets of the SEC.

According to a source familiar with the House Financial Services Committee’s hearing schedule, this week, House members plan to raise the issue of government shutdown when Gensler attends the September 27 SEC oversight hearing.

Courts Have Cash

Federal courts may continue to operate normally for several weeks until the Department of Justice runs out of cash collected from court fees and other sources.

Ongoing disputes such as the legal battle between the SEC and Binance, or similar disputes with Coinbase, are expected to continue for now. If the shutdown lasts beyond the initial few weeks, the workload and staffing will be reduced under the Anti-Deficiency Act, with limited personnel handling certain cases.

People in the cryptocurrency industry are preparing to closely watch the long-awaited criminal trial of FTX founder Sam Bankman-Fried, which can be observed by whether the criminal trial continues.

“Under the Constitution, federal criminal proceedings must continue,” said John Spallanzino, a lawyer at McGuireWoods LLP. He said that if the shutdown continues, some court activities may slow down. “You may start to see some procedures in bankruptcy court slow down.”

The future strength of the industry depends to some extent on the outcome of these cases, as many companies such as FTX, Celsius, and Voyager have gone bankrupt during last year’s financial crisis, and these cases should return locked funds to cryptocurrency investors.

Congress is Stalled

As for the cryptocurrency industry eventually obtaining a tailored set of US regulatory frameworks, federal legislation moving in that direction may not receive help from the chaotic Congress.

“If the government shuts down, progress on bills will be stalled,” said Sheila Warren, CEO of the industry advocacy group Crypto Innovation Council. She expressed concern that lawmakers would lose focus, which is a challenge for the industry. “After the government shuts down, it is currently unclear what issues will become the top priorities that will capture the attention of Congress. One thing we know for certain is that the policy world is not static. There’s a new issue rising to the top of the list every week.”

Of course, the House bills that cleared committee hurdles—most notably one that would establish top-down regulation of the US cryptocurrency market and another that would set rules for stablecoins—are expected to have limited success as the Senate is unlikely to accept the House’s support and collaborate with it.

Former Senator Pat Toomey, who is currently a policy advisor at Coinbase, said he believed that the potential pain caused by a government shutdown is exaggerated, although he stated that Congress must focus on resolving budget issues rather than prioritizing other matters.

“Will that attention come at the expense of potentially advancing cryptocurrency-related legislation in the House? Probably not,” he said. “I think the House legislation will be a little later, maybe in November.”

Of course, these comments are based on the assumption that the issue of shutdown will be resolved in a shorter time frame than the previous one, which lasted nearly five weeks. If the stalemate continues for a longer period, it may test the position of conservative Republican lawmakers who insist on reducing US spending in unknown areas.

The US government agencies have become increasingly accustomed to the cyclical drama of Congress, so the crypto world may not initially notice any obvious differences. However, if the government shutdown breaks previous records, it will almost certainly have a significant impact, as employees who are not receiving salaries start looking for work elsewhere and the government departments’ emergency funds are also running low.

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