SEC gaffe
“I knew it was too good to be true,” said Rep. Ritchie Torres (D, NY).
Torres was referring to yesterday’s market moving gaffe by the SEC’s X account at 4:11 p.m. ET which mistakenly tweeted (best viewed on mobile) that long-awaited Bitcoin spot market ETFs had been approved for listing.
SEC Chair Gary Gensler quickly published a tweet 15 minutes later on his personal X account saying, “The SEC twitter account was compromised, and an unauthorized tweet was posted. The SEC has not approved the listing and trading of spot bitcoin exchange-traded products.”
Gensler’s tweet was too late for some poor traders. CoinDesk reported that the price of Bitcoin shot up – and then down – $3,000 and “wiped out over $50 million of leveraged derivatives trading positions within an hour.’
what you should know: It shouldn’t take long for the Republican-controlled House Financial Services Committee to announce a hearing on the matter – or at least a spicy Congressional letter.
SEC gaffe – reaction
In addition to Rep. Torres, Congress weighed in quickly yesterday afternoon:
“Just like the SEC would demand accountability from a public company if they made such a colossal market-moving mistake, Congress needs answers on what just happened. This is unacceptable.” – Senator Bill Hagerty (R, TN) on X regarding SEC fake tweet
“Fraudulent announcements, like the one that was made on the SEC’s social media, can manipulate markets. We need transparency on what happened.” Senator Cynthia Lummis (R, WY) on X
“Chair [Gary Gensler], Does this mean we can blame more of the [SEC]’s horrible rulemaking and so-called regulation by enforcement on a ‘compromised account? #askingforafriend – Sincerely, Chairman of the House Financial Services Oversight and Investigations Subcommittee” – Rep. Bill Huizenga (R, MI) on X
what you should know: The wait for approval of Bitcoin spot market ETF applications by the SEC continues.
letters – Senator Warren
The digital assets anti-money laundering narrative continued percolating in Washington yesterday.
Industry organization Blockchain Association (BA) responded to Senator Elizabeth Warren’s (D, MA) Dec. 18 letter (also sent to Coin Center and Coinbase) which searched for “revolving door politics” evidence among BA’s employees.
BA replied in part, “While Blockchain Association does not currently employ anyone with the credentials listed in your first question, we are fortunate and proud to count many former military, national security, intelligence officers, and law enforcement professionals among our membership.” Read the entire response (PDF).
On X, BA CEO Kristin Smith said about her org’s reply, “…the fundamental charge in Sen. Warren’s letter is where we want to correct the record. The idea that these ex-officials, many of whom devoted the bulk of their careers to defending the U.S. and protecting everyday citizens, would now somehow toss aside devotion to their country in order to weaken our ability to catch and prosecute America’s enemies….we don’t agree with that.” Read her Tweet thread.
A response to Senator Warren’s letter has already been delivered by Coinbase on December 18 – see it.
And, Coin Center has yet to respond. Due date is this Sunday.
letters – in review
BA’s response is another in a cascade of letters leading back to Sen. Warren’s Digital Asset Anti-Money Laundering Act [S.2669] (DAAML), which the industry considers draconian. Depending on the Member, the AML-digital assets discussion on Capitol Hill represents concern, skepticism and/or political opportunity regarding the asset class. Momentum for DAAML appeared to increase after the terrorist attacks in Israel on October 7 and a since-corrected Wall Street Journal story on October 10.
The letter cascade has included:
November 15 – Addressed to Congressional Committee leaders, this is a BA letter from former members of the military and government who are currently members of Blockchain Association. The group expresses interest in confronting illicit finance head-on in partnership with Congress. See that one.
November 15 – A bipartisan House letter led by Majority Whip Tom Emmer (R, MN), HFS Chair Patrick McHenry (R, NC) and Rep. Ritchie Torres (D, NY) was sent to Treasury and the White House regarding clarification on digital assets role in illicit finance. The letter.
October 26 – Sen. Cynthia Lummis (R, WY) and Rep. French Hill (R, AR) sent a bicameral letter to U.S. Attorney General Merrick Garland on illicit financing and digital assets concerns. See it (PDF).
October 17 – Senator Warren’s letter to Treasury and the White House asking about digital assets role in the terrrorist attacks on Israel. The letter was signed by over 100 Democrats and 2 Republicans (Senators Roger Mashall (R, KS) and John Kennedy (R, LA)). Read it.
letters – next steps
Regarding the latest Warren letter and responses, a Senate Banking hearing may be the next “card” played by Senator Warren and Senate Banking Chair Sherrod Brown (D, OH). Yet, as the November general election approaches, the risk/reward of a public hearing attempting to call out former members of the military and government who work in digital assets could be challenging for anti-crypto advocates.
Also in the Warren/AML debate mix is the Crypto-Asset National Security Enhancement (CANSEE) Act of 2023″ [S.2355] and Terrorist Financing Prevention Act [S.3441] from the same bipartisan group of Senators led by Jack Reed (D, RI) and Mark Warner (D, VA), respectively.
More industry-friendly AML-related bills that are bubbling in the 118th Congress include the Senator Ted Budd’s (R, NC) Financial Technology Protection Act [S.1340] (which is also in the House) and Lummis-Gillibrand [S.2281].
Davidson on illicit finance
In an op-ed in The Hill, House Financial Services Committee member Rep. Warren Davidson (R, OH) takes to task Sen. Warren’s Digital Asset Anti-Money Laundering Act for its approach to illicit finance and digital assets. In turn, Davidson suggests that the digital asset market structure bill passed out of HFS with bipartisan support in July (a.k.a. Financial Innovation and Technology for the 21st Century Act or FIT 21), is the way forward.
Davidson writes, “The first step in any approach to combating illicit finance should focus on bringing more digital asset firms to the United States. U.S. based companies will be subject to U.S. law and regulation. Their purposefully unworkable framework will drive companies and capital offshore. Instead, we should bring clarity to the market by advancing legislation by the House Financial Services Committee and House Agriculture Committee to the floor as swiftly as it is finalized.” Read more.
what you should know: No surprise here. Rep. Davidson has been outspoken regarding Sen. Warren’s digital assets efforts.
use case – AI and content
Fox Corp. has launched a new blockchain platform called Verify to help it negotiate with artificial intelligence companies looking to crawl Fox’s content and inform the AI companies’ large language models (LLMs).
Developed by blockchain company Polygon Labs and Fox’s tech team, Axios’ Sara Fischer explains, “The Verify blockchain protocol is a distributed internet database of media content that’s cryptographically signed to establish the content’s origin and history. (…) Media companies can register their content to the platform to verify that it’s theirs. Once the content is verified, they can grant usage rights to AI platforms that want to use their content to train the large language models (LLMs) that support apps like ChatGPT or Bard.” Read more.
what you should know: Next step to be revealed is the revenue model for content companies including Fox.
dark money
The Cedar Innovation Foundation (website) is getting attention for its “dark money” roots and support for digital assets via political campaigns. Democratic leaders appear to be worried as Senators Elizabeth Warren and Sherrod Brown and Better Markets’ Dennis Kelleher express disbelief to CNBC. Senator Brown, who is in a hotly-contested battle for his seat in Ohio says, “Anyone who knows my record knows I will never bow to special interests or industry pressure, no matter how well-funded by dark money from shady sources… That’s why I’ve been working in the Committee to protect families’ money from the fraud, scams, and abuse rife in this industry, and to stop its use to fund terrorism and other illicit activities.” Read more.
more tips:
Yesterday, the Cedar Innovation Foundation tweeted defiantly on X, “Once again, Gensler is lying to you, trying to push Wall Street’s narrative in his campaign to become the next Treasury Secretary. You should know how Gensler’s anti-crypto escapades have fared in court. Hint: they’ve failed.”
what you should know: The “dark money” support fueled by former FTX CEO Sam Bankman-Fried of (mostly) Democratic candidates in the last election cycle lurks. Many politicos breathed a sigh of relief when SBF’s campaign financing trial was cancelled last month.
more warnings from SEC
There’s still no approved Bitcoin spot market Exchange-Traded Fund, yet. But, the Director of the Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy, Lori Schock, takes time to warn potential investors about the pitfalls of cryptocurrency.
In an article titled, “Thinking About Buying the Latest New Cryptocurrency or Token?,” Schock begins, “Should you or shouldn’t you buy the latest new cryptocurrency or token? I can’t tell you how many people have come up to me and asked if they should invest in bitcoin…” Read it.
Chair Gary Gensler promoted the article on X saying, “Crypto asset securities may be marketed as new opportunities but there are serious risks involved.”
what you should know: The day before yesterday, Gensler was warning about crypto investment – so, two warnings in two days. Surely the Bitcoin spot market ETF approvals are fait accompli -and in spite of an erroneous tweet yesterday.
hear ye, hear ye
Today, House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion led by Chair French Hill (R, AR) will convene a hearing titled “Regulatory Whiplash: Examining the Impact of FSOC’s Ever-changing Designation Framework on Innovation”. The proceedings begin at 2 p.m. ET in Rayburn.
Live video, witnesses and prepared testimony are here.
digital wallets
Public Comment Re: Defining Larger Participants of a Market for General‐Use Digital Consumer Payment Applications – Cato Institute
Coinbase’s response letter to the CFPB’s proposed rule – Coinbase
DeFi Education Fund’s response to the CFPB’s proposed rule – DeFi Education Fund
still more tips
Crypto and fintech groups fined $5.8bn in global crackdown on illicit money – Financial Times
India’s FIU action bodes ill for local crypto exchanges – mint
New crypto tech brings legal recourse to the blockchain – Fox Business
Opinion: Without privacy, DAO governance fails – Blockworks