As lawmakers near deal to end government shutdown, here's what that means for crypto when agencies reopen 

The U.S. government could soon reopen, allowing key federal agencies overseeing digital assets to resume normal operations and enabling lawmakers to refocus on long-stalled cryptocurrency legislation.

On Sunday night, a group of Senate Democrats and Republicans reportedly reached a deal, taking the first step toward ending the 41-day government shutdown — the longest so far in history. The deal would fund the government until the end of January, and on Monday night got through the Senate and awaits a vote in the House.

If the shutdown ultimately ends this week, two key federal agencies would be able to get back to work fully. The U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission have been operating with limited staff since Oct. 1 and have only been allowed to work on emergency matters.

"It's not just that the SEC lost 40 days, it's that putting projects down and then picking them up again, you can't just start up from where you left off," said Howard Fischer, a former senior trial counsel at the SEC and now a partner at Moses & Singer LLP, in an interview with The Block. An ongoing changeover in administration from former President Joe Biden to President Donald Trump and people leaving regulatory agencies have also slowed work, Fischer added.

Before the shutdown, SEC Chair Paul Atkins said that his agency had plans to put an "innovation exemption" in place by the end of the year. He said that the exemption would quickly allow firms to "bring on-chain products and services to market." However, last month, Atkins said the shutdown was affecting the agency's work and plans for the end of the year.

Post-shutdown plans

Post-shutdown, the SEC could next issue exemptive relief, said TD Cowen’s Washington Research Group in a note on Monday. Exemptive relief means that the SEC could grant an exemption to an entity from certain rules under specific conditions. 

"This is a way to permit tokenization and crypto activities to occur without regard for existing regulatory regimes that apply to traditional financial firms," TD's Jaret Seiberg said. 

The securities watchdog also plans to continue a probe into digital asset treasury companies, which have been impacted by the shutdown, Fischer said. 

At the sister agency, CFTC Acting Chair Caroline Pham has said that there would be "listed spot crypto trading and tokenized collateral by the end of the year." On Sunday, Pham confirmed a report from CoinDesk that she is in talks with regulated exchanges to launch spot trading as soon as next month, including leveraged trading.

The SEC and CFTC have been working closely together over the past year.

"What we've seen in this administration is an unusual cooperation between the SEC and the CFTC, which has not always been the case," Fischer said. "So while I think getting back up to speed, especially with an aggressive agenda, is going to be complicated. The fact that the SEC and CFTC appear to, from all reports, be working together, might make it easier than it would in other years."

What happens to ETFs

During the shutdown, firms were able to launch a handful of crypto exchange-traded funds after taking a less traditional route. Beforehand, the agency approved unified listing standards, which essentially meant dozens of crypto ETF applications could go live more quickly.

A week after the government shut down, the SEC issued guidance clarifying procedures for firms seeking to go public. In it, the SEC said that if firms want to go public, they can file an S-1 registration statement without a "delaying amendment." Multiple firms went that route and have so far been able to list and trade SOL, Litecoin, and HBAR products.

There are a few different scenarios for those products once the government reopens, Craig Salm, chief legal officer at Grayscale Investments, said in an interview.

"One, they [the SEC] could just let these filed S-1s go automatically effective after 20 days and then not do anything," Salm said. "Or they could engage with issuers again, ask additional questions if there are questions, and start back on the process that was underway prior to the government shutdown, or various permutations of that."

Salm also said that the SEC could pause launches to work through additional comments, but said the agency could also send comments for crypto ETFs that have begun trading.

On Capitol Hill 

Work on legislation to regulate the crypto industry lost about a month and a half of time, Ron Hammond, head of policy and advocacy at Wintermute, said in an interview.

"From a lot of our sources that we're talking to, those talks are still happening even with the shutdown — it's not like everything has been put on hold," Hammond said. "The staff are working together, they've been doing it a little bit with one hand tied behind their back because the agency staff are not allowed during the shutdown to look at their emails or respond to inquiries from the Hill on legislation."

TD Cowen's Seiberg said input from agency staff tends to carry more weight.

"It also would be tough to advance a bill that the SEC and CFTC staff have not reviewed," Seiberg said. "It would allow opponents to demand a delay until the agency reviews are complete."

After the House passed its version of a bill to regulate the crypto industry over the summer, the Senate has been working on its own legislation. The Senate Banking Committee, led by Republicans, has a draft that looks to allocate jurisdiction between the SEC and the CFTC, as well as create a new term for "ancillary assets" to clarify which cryptocurrencies are not securities.

The Senate Agriculture Committee, which has jurisdiction over the CFTC, released its draft on Monday. At the end, lawmakers will have to coordinate to end with one final bill out of the Senate and ultimately one bill to be sent to Trump's desk. Work on the bills has been repeatedly delayed, and the shutdown pushed that further. Upcoming midterm elections next year don't help the bill's political calculus either, as it could really affect how lawmakers approach legislation as they look to keep their seats and shift their focus to campaigning.

The Senate Agriculture Committee is also tasked with holding a nomination hearing for Mike Selig, Trump's pick to chair the CFTC. Hammond said it's likely the Senate Agriculture Committee would hold that hearing soon after the shutdown ends. A committee spokesperson did not respond to a request for comment regarding the nomination hearing.