States, Not Congress, Will Lead Crypto Regulation, Says Legal Expert

State financial regulators will implement crypto regulations before the U.S. Congress does, Jarrod Loadholt, a partner at Ice Miller Public Affairs Group, told CoinDesk TV’s “First Mover."

Rather than waiting on the federal government to codify rules, states could move forward with standards of their own, such as liquidity requirements, as a condition for all crypto trading platforms to have an operating license, Loadholt said Thursday. The federal government is more likely to regulate crypto through enforcement actions rather than through legislation, he said.

“The reality is that this is still a market that is evolving and most policymakers are still trying to learn it,” Loadholt said. “But in terms of who can act faster and who can actually move faster, it's going to be a state regulator.”

Loadholt’s comments come after U.S. Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) proposed a crypto-friendly bill earlier this month. That bill seeks to establish a regulatory framework for digital assets across the U.S.

Read more: Key US Senators Introduce Crypto Bill Outlining Sweeping Plan for Future Rules

The collapse of stablecoin terraUSD (UST) last month, as well as crypto lender Celsius Network freezing customer withdrawals this month, could be examples lawmakers use as calls to action.

In the short term, Loadholt said, there will be “far more action around licensing” because of the need for some guardrails that can address investor concerns. He suggested that in the longer term, a majority of the industry could disappear, while those that can afford to comply with regulations are likely to keep operating.

“Ultimately, the industry should want to feel like they have the confidence that no matter where they invest, that they’re safe,” he said.

It is unlikely Congress will pass a law to regulate the industry this year, Loadholt added.