BlackRock on illicit finance, crypto
“This is a technology that presumably could actually decrease the utility for illicit finance,” says Samara Cohen in reference to blockchain technology. She should know as a BlackRock senior managing director and the company’s chief investment officer of its ETF & Index Investments -which includes the recent launch of the company’s Bitcoin spot market ETF.
Cohen appeared on Bloomberg’s “Masters in Business” podcast with host Barry Ritholtz this week and had pointed remarks on regulation and the surprising “take” – compared to some in Congress – on illicit finance and the benefits of crypto’s underlying technology. During the course of the podcast, it’s obvious that BlackRock has a committed, long-term view on digital assets.
Highlights include: (lightly edited for clarity)
On why it took so long for a Bitcoin spot market ETF to appear :
Ms. Cohen: “First, I think the narrative from investors really grew over the past few years. The infrastructure in the crypto world was also evolving, but regulation and policy has been evolving as well and still has a long ways to go. So I think regulators needed to – and the SEC, in particular – needed to hear from investors [and] work through the operating model. And then also remember, (…) this SEC has a very ambitious equity market structure agenda on their plate. And that’s really been their priority. But, ultimately, investor demand and desire or access in an ETF won out.”
On what investors are looking for with a crypto ETF:
Ms. Cohen: “The convenience of ETFs is incredibly compelling for investors. They understand the ecosystem. Now, importantly, with Bitcoin ETFs, the institutional grade custody is really important for investors as well.”
“To your question about the the crypto ecosystem separate from ETFs, I think there are a lot of questions there around how that evolves. In terms of what we’ve seen so far. Is it the technology that’s created it? Or is it really the fact that there have been no guardrails around the ecosystem that is built around it? I would say the technology has a lot of promise in terms of its transparency and auditability. This is a technology that presumably could actually decrease the utility for illicit finance (51:52). However, we would really need a regulatory and policy environment supporting it. And I think that’s where there are a lot of questions, particularly in the US around future direction.”
Hear the podcast on Apple Podcasts.
Warren letter to Behnam
Politico reported yesterday that a new bipartisan Congressional letter dated last Friday from Senator Elizabeth Warren (D, MA) and Chuck Grassley (R, IA) asks Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam what he knew and when he knew it when it comes to FTX and its former CEO Sam Bankman-Fried. See the letter.
The basis for the letter were revelations – or lack thereof – coming out of a December 2022 Senate Agriculture hearing on FTX and the demise of the Digital Commodity Consumer Protection Act (DCCPA) with Chair Behnam, who is a Democrat. The DCCPA was a bill which would have brought certain crypto assets within the U.S. financial system regulatory umbrella and designate them commodities overseen by the CFTC – something Warren has vociferously opposed.
The letter begins by asking for “A full accounting of all meetings, phone calls, and written correspondence between you and/or your staff and Mr. Bankman-Fried and/or his staff…” Read more from Politico.
what you should know: This letter would appear to be more in the jurisdiction of Senate Ag Chair Debbie Stabenow (D, MI), but Sen. Warren, a member of Senate Banking, may see an opportunity to enhance her anti-crypto efforts especially as Stabenow’s term ends in January. (Grassley is on Senate Ag.) No word on whether Warren and Grassley will be sending a similar letter to Securities and Exchange Commission (SEC) Chair Gary Gensler who was also known to communicate with FTX.
Side note: Behnam used to be Stabenow’s senior counsel.
today
The HFS National Security, Illicit Finance, and International Financial Institutions Subcommittee hearing titled, “Held for Ransom: How Ransomware Endangers Our Financial System” led by Chair Blaine Luetkemeyer (R, MO) will take place today beginning at 10 a.m.
Live stream and hearing page here.
Blockchain analytics firm Chainalysis and Palo Alto Networks are scheduled to appear as witnesses among others. See the memo.
what you should know: Palo Alto Networks Daniel Sergile’s prepared testimony is an interesting read. He concludes by noting five ways risks can be reduced to prevent cyber attacks. Download it.
markup – sending FSOC a message
Tomorrow’s consideration of House Joint Resolution 120 from Rep. French Hill’s (R, AR) at the House Financial Services (HFS) markup has links to January’s HFS Subcommittee on Digital Assets, Financial Technology and Inclusion hearing titled, “Regulatory Whiplash: Examining the Impact of FSOC’s Ever-changing Designation Framework on Innovation.”
Read blockchain tipsheet’s coverage.
Generally, Republicans were of the view FSOC (Financial Stability Oversight Council) had gone too far and was inhibiting innovation. And, Democrats were fine with the new ruling which they believed was grounded in Dodd-Frank and preventing the next Great Financial Crisis.
During opening statements of that hearing, Subcommittee Chair French Hill (R, AR) argued that the FSOC had overstepped by giving the Council the capability to “designate” non-bank entities which could result in onerous new financial requirements for the designate companies including digital asset businesses.
Subcommittee Ranking Member Stephen Lynch (D, MA) opposed Hill’s view and pointed to the problem of “shadow banking” introduced by non-bank entities. FTX and Binance were among those companies mentioned which could inject instability and vulnerability into the financial system according to Lynch.
At tomorrow’s markup, “H.J. Res. 120” will get a vote which formalizes “congressional disapproval” of FSOC’s “Guidance on Non-Bank Financial Company Determinations‘”.
more tips:
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- Shadow banking – Investopedia
markup – digital assets
In a tweet thread yesterday, Digital Chamber policy executive Cody Carbone drilled down on the importance of two bills for digital assets at tomorrow’s HFS markup.
For Chair Patrick McHenry’s (R, NC) “Financial Services Innovation Act of 2024” [H.R. 7440], Carbone cites the installment of a Financial Services Innovation Offices (FSIO) at regulatory agencies and says that for the digital assets ecosystem, the bill “means potential new pathways for projects that have struggled under unclear and uneven regulatory frameworks. Clarity and cooperation could significantly enhance market stability and growth.”
And for the FUTURE Act or “Fostering the Use of Technology to Uphold Regulatory Effectiveness in Supervision Act” [H.R. 7437] led by Rep. Erin Houchin (R, IN), Carbone says, in part, about the bill’s specifics, “By requiring real-time capabilities and better data handling, H.R. 7437 ensures that regulatory bodies can keep pace with the fast-moving digital finance sector, enhancing oversight and consumer protection.”
UK – stablecoins
Speaking at a financial innovation conference, UK economic secretary Bim Afolami said that his government was ready to roll out legislation for stablecoins, staking, exchanges and custody in either June or July. CoinDesk quotes Afolami: “”We are now working at pace to deliver the legislation to put our final proposals for our regime in place… Once it goes live, a whole host of crypto asset activities, including operating an exchange, taking custody of customers’ assets and other things, will come within the regulatory perimeter for the first time.” Read more.
what you should know: In theory, that will put the United Kingdom ahead of the U.S. as it looks to integrate digital assets within the UK financial system.
EU’s offline CBDC
The European Central Bank (ECB) provided a status report on efforts to create a regimen for an offline digital Euro (i.e. Central Bank Digital Currency or CBDC) that preserves privacy. According to Ledger Insights, “Unlike the online wallet, there will be a single technology provider for the offline solution, which needs to integrate with apps provided by payment service providers. The digital euro offline solution is meant to be cash-like and doesn’t involve intermediaries, so there’s no anti-money laundering (AML) when it comes to transactions.” Read more.
Make no mistake, there’s an online CBDC, too.
still more tips
Bitcoin mining CEOs remain ‘upbeat’ five days away from the halving, Bernstein says – The Block
Budget Drama and Crypto Mining Concerns: A Discussion with Arkansas State Reps. Gazaway and Hudson – KASU, Arkansas
TradFi firms now prefer public blockchains: Ex-Grayscale exec – Cointelegraph
Crypto FOMO Is Back. So Are the Scams – Wired