Mike Flood is shaking up Congress over cryptocurrency

Republican Rep. Mike Flood, a soft-spoken second-term lawmaker from Nebraska, might seem like an unlikely candidate to pull the strings when it comes to cryptocurrency policy in Congress. Nonetheless, he played central casting in May when his colleagues took historic action by voting for the first to pass two measures that would lay out rules for the industry.

It was the culmination of effort by Flood, who cosponsored both pieces of legislation, along with a small group of his colleagues. They won a surprising amount of bipartisan support for both the Financial Innovation and Technology for the 21st Century Act (FIT21) and another proposal that would repeal a Securities and Exchange Commission rule known as SAB-121.

“If you would have told me we would have received 71 votes from House Democrats, I would never have believed it,” Flood said in an interview with Cointelegraph, referring to the vote for FIT21. The measure would allow cryptocurrency projects to “certify” that their tokens are commodities — moving them out of the SEC’s regulatory purview and over to the Commodity Futures Trading Commission.

Related: Months ahead of the 2024 election, Democrats are in turmoil over crypto

Flood, 49, joined Congress in July 2022 after prevailing in a special election, meaning he has just a small amount of seniority over his freshman colleagues. However, he previously spent roughly a decade in the Nebraska Legislature, including six years as its speaker, which provided him with a slight edge in experience. It may also have played a role in helping him to win his slot on the House Financial Services Committee — a highly coveted role — where he sits on the subcommittee for digital assets and financial technology.

Cointelegraph: What inspired your interest in cryptocurrency?

Flood: I started as a member of the Nebraska Legislature Banking Committee, putting together what I called the Nebraska Financial Innovation Act. And it really was a bill that allows Nebraska to issue stablecoins, and it ended up being a real education because it was me versus all of the bankers. It was really a new concept in 2021.

I want to make sure that we preserve our dual-banking system so that you can have federally chartered banks or federally chartered institutions issuing stablecoins and custodying digital assets — but also state based charters. And so that really got me into it. I wanted to be on the Financial Services Committee when I entered the U.S. House, and I started hosting a flyover fintech conference last year.

Rep. Flood speaking at a press conference alongside Rep. Elise Stefanik, House Speaker Mike Johnson, and Majority Whip Tom Emmer. Source: Office of Rep. Flood

CT: Nebraska is not a place where most people would assume that crypto is a big topic. How much do you hear about it from your constituents?

Flood: It’s on the radar. Everybody knows about Bitcoin, and sometimes it sucks the air out of the room because they don’t see beyond that. But I will tell you younger people that haven’t grown up with 50 years of fiat currency — they really take to it really quickly.

When you talk to a business student at the University of Nebraska, digital assets is where they wanna be, that is what they’re interested in. That’s where it’s going. And as a believer in states rights, I like the idea that states are laboratories of democracy.

I think one of the things that happened with my process in Nebraska is that our banks understood that we were going to give them powers that some of their customers wanted. And I think it really surprises a lot of bankers — especially in rural areas — how many people are invested in digital assets. They recognize that this asset class is something they haven’t had any exposure to, and they want to be full service.

Related: Gary Gensler is hurting the little guys for Wall Street

One of the great things about states like ours is that community banks are central to our future. They want to offer the services that their customers want, and more and more people are engaging in cryptocurrency.

At the end of the day, after a lot of education and a lot of negotiation, we set up a system and, you know, it really helps that our Department of Banking in Nebraska has embraced this 100% and they started adding the human capital to the department to be able to appropriately regulate this.

I think it’s a bright spot in states like Nebraska, and we need to be on the forefront of things like this if we want to attract the right kind of talent.

CT: Who do you believe are the biggest stars in Congress when it comes to crypto policy?

Flood: There are two people I bring up right away. Rep. French Hill (R) has the banking experience. He used to work in the Treasury Department. He was the CEO of a very large bank in Arkansas. I like watching him and Rep. Warren Davidson (R) in the same room. He’s a warrior for DeFi. He’s a believer in digital assets, he’s as smart as the day is long, he understands it.

And of course, Warren is a privacy advocate. He is a “Get the government out of my backyard” advocate. He embraces DeFi and he understands the issues and being on the Digital Assets Subcommittee, it’s fun to sit in there with those two book ends and create policy.

You know, I’m actually surprised FIT21 made it to the floor before stablecoins, because for most of the last year stablecoins were what I put most of my time in to. But I’m delighted that FIT21 is where it’s at, and I hope stablecoins are shortly behind it.

CT: Congressional Democrats are becoming increasingly divided over the direction they want to go on crypto policy. What has working with them been like recently?

Flood: Well, if you would have told me we would have received 71 votes from House Democrats to pass FIT21, I would never have believed it.

We got 21 votes [from Democrats] to buck the president with our CRA on SAB-121. I was hoping for 8-10. We went over the numbers over and over — and we got former Speaker [Nancy] Pelosi. This just tells you change is coming. The cavalry is coming.

Eleven Senate Democrats joined Republicans in a 60-38 vote to repeal SAB-121. Source: The CEDAR Innovation Foundation

And that’s not anything the Republicans are doing. Americans are going here. The biggest banks in the nation — BNY Mellon and so many others have been in the business of custodying people’s assets for 200 some years, and they don’t want to be left on the sidelines.

A lot of members are going on CODELs [congressional delegations] to countries like Singapore and the UAE and the European Union and they’re hearing about digital asset frameworks that are being set up there, and they’re coming back to Congress, saying, “Why are we — the world’s superpower when it comes to financial services — not even in the game?”

I think it’s been very organic. I don’t think any member of Congress can take credit for what’s changing. People are just embracing it and members are starting to react.

Should Nancy Pelosi be trading stocks?

CT: What do you think about the rules related to members of Congress trading stocks or cryptocurrencies? Members like Nancy Pelosi have been making headlines because of their sage-like trading abilities. It is so unusual that a new app — called “Autopilot” — launched in May that will allow users to copy trades made by members of Congress. Is this situation sustainable? Do the rules regarding investments by members need to change?

I can tell you I’m not invested in anything related to crypto. I’m also intricately involved in the issue. So just, for me, it isn’t something I’m going to do, but it’s something we need to look at. Industry regulators shouldn’t be actively investing in the very thing they regulate. I haven’t been involved in the details of the policy discussions.

Rep. Flood speaking with reporters. Source: Office of Rep. Flood

There could be a variety of approaches, but we need to make sure that members of Congress aren’t trading on insider information. At the end of the day, that is not good for anybody and it’s not right. It’s not ethical.

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Given my interest in the issue, for me, I just don’t have anything to do with it. I feel that gives me the ability to throw myself into these issues and make good decisions about what our policy should be.

CT: What do you think the next Congress — which may be working with President Trump again — will be focusing on in this space?

Flood: Well, success would be passing FIT21 and the stablecoins bill. That would be the start. I think in the next Congress, we have to really understand artificial intelligence and play in that space. We have to worry about cybersecurity.

As far as crypto, once we pass FIT21 and stablecoin legislation, hopefully we’ll have a favorable executive branch that can write rules to guide us. What I’ve learned in Congress is that you can pass a law, but the rules are what you really have to pay attention to, and it will be a full time job to make sure those rules comply with congressional intent. The devil will be in the details.

My sense is that if we were to pass those two bills, the 119th Congress will watch their implementation by agencies to make sure that the rules don’t suffocate innovation, and that they also protect consumers.

Granting states authority to issue stablecoins

CT: Elaborate on what you want to do with stablecoins.

Flood: We’ve been working on a bill with [House Financial Services Committee] Chairman Patrick McHenry (R) and we are negotiating to this day with Ranking Member Maxine Waters (D). My biggest issue with a stablecoin bill — and it’s something that I’m hoping doesn’t get watered down — we’ve got to have a state pathway. That is a hill to die on for me.

Rep. Flood in Washington, D.C. Source: Office of Rep. Flood

You can’t take states out of this space. It will limit innovation. It is a slap in the face to states like New York that have arguably some of the best regulators in the financial services space. And on any given day, I worry that’s going to be what somebody wants to trade — to make it some top-down, federal stablecoin regime that’s going to be overly burdensome and not movable. And that is not where we need to be.

Allow state-chartered banks to be able to do this — you know, to take custody of stablecoins and deal in stablecoins. That’s part of the beauty of America and a part of the beauty of our financial system. It’s so diverse.

We have G-SIBs (globally systemically important banks), regional banks, community banks, federal banks and state banks. They don’t have that in Europe. They don’t have that in a lot of places. That’s what makes us so dynamic. I’m not against a federal role in regulating state-chartered digital-asset depositories, just like — right now — the FDIC does that for a lot of state-chartered banks.

States’ rights matter. States are laboratories of democracy. States are their own thing. We’re all competing in the knowledge economy to drive growth and opportunity and economic development, and I feel like, in the name of “safety,” there are some who think states are incapable of understanding digital assets, which I think is obnoxious.

The people of Nebraska know how to run good banks. Our banks aren’t failing. In fact, our PPP [Paycheck Protection Program] program ran excellently with our community banks.

People aren’t any smarter in Washington than they are in Lincoln, Minneapolis, Des Moines or New York. And if I were the New York DFS [Department of Financial Services], I would be livid at the idea that the federal government thought New York was incapable of appropriately safeguarding consumers in arguably one of the biggest financial centers in the world. But there’s this top-down mentality [in Washington] that they’ve got to have their thumb on everything.

This interview was condensed for length and clarity.

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