Hill and Himes
Rep. French Hill (R, AR) and Rep. Jim Himes (D, CT) appeared in sync at a Foundation for Defense of Democracies (FDD) event yesterday titled, “Fortifying the Crypto Future: U.S. National and Economic Security in the Virtual Realm.” See it.
Both Hill and Himes are members of the House Financial Services (HFS) Committee and support efforts to create a regulatory framework for digital assets.
Among the highlights of the Congressmens’ interview conducted by FDD’s Juan Zarate, Rep. Himes opined on his reasons to back the current stablecoin and digital asset market structure bills in the House:
“I was a technology banker in 1998-99, and to me this feels a lot like how we felt then about the Internet (…) it feels to me that’s this moment…. I’m also skeptical about some of the promised applications… (…) But from a prosperity, economic and a national security standpoint, you don’t want to be behind innovation. The hard part is not putting in place a better or perfect regulatory regime (…) but, it’s not hard to do better than the one we’ve got with all the uncertainty. We shouldn’t be way behind on innovation and if we don’t make progress, we will be.”
Rep. Hill built on Himes’ comments:
“The private sector should be the leader. Our job is to provide the ways and means and the conditions of a fair-minded, open, regulatory framework and get out of the way.”
Moving on to the hot topic of terrorist financing and cryptocurrency, Rep. Himes agreed there is risk in digital assets but saw clear benefits with the public ledger of the blockchain. “I do think that there is a fundamental misunderstanding of how much you would like to have bad actors in a much more technological and auditable environment,” said Rep. Himes.
Noting the worldwide export of the U.S. money supply, Rep. Hill added in part, “We’ve got criminal elements using all forms of money -not just crypto. And crypto – when done properly – is the easiest place to be caught potentially. And also, if we want stop terror groups from having access to unlimited money, we might start with our own policy of giving $18 billion back to Iran, no matter how well-intentioned.” See the webcast.
Rep. Hill spoke to the pace of the stablecoin and digital asset market structure bills in the House today and admitted a significant “timing issue” with elections, but didn’t “feel obligated to move them together.” suggesting, perhaps, one bill could move.
Closing the interview, Himes gave three reasons why he’s excited about moving digital assets legislation:
- More competition for incumbent players (the traditional financial system);
- Anything related to provenance (think digitizing titles for land and using blockchain);
- And, tokenization of financial assets and the “plumbing” could revolutionize the financial industry.
what you should know: This isn’t the first time for the bipartisan appearance of Hill and Himes in support of digital assets. Both spoke at last November’s Blockchain Association Policy Summit on similar topics. Himes said in yesterday’s interview that Democratic support for a digital assets regulatory framework is more widespread than publicly seen. He seemed to obliquely suggest that HFS Ranking Member Maxine Waters (D, NY) likely supported the stablecoin bill but was stopped by outside forces (i.e. The White House).
paper: illicit finance and DeFi
A new white paper titled, “Genuine DeFi as Critical Infrastructure: A Conceptual Framework for Combating Illicit Finance Activity in Decentralized Finance” was published yesterday by Polygon Labs Rebecca Rettig and Katja Gilman and former U.S. Treasury official Michael Mosier.
Full paper is here on SSRN.
In announcing its publication, Ms. Rettig said in a tweet thread on X that the three are “sharing a paper that begins a conversation around, & proposes a conceptual framework for, how to answer the ‘illicit finance’ policy question as it relates to DeFi.” Mosier added in a tweet of his own, “Our attempt to restart the convo on DeFi & reg/risk in substantive context.”
A 2-pager of the paper is here.
Variant Fund Chief Legal Officer Jake Chervinksy (formerly of Blockchain Association) noted the report’s timeliness on X, “In the crypto industry, the policy conversation is often dominated by headlines about the securities and commodities laws. But in DC, policymakers are much more concerned about illicit finance than anything else.”
what you should know: With ties made between crypto and terrorist financiing, and crypto mixers and its decentralized core getting increasing heat from government, digital assets supporters are feeling the pressure to defend DeFi. Otherwise, the inherent, cryptographic benefits of digital assets could be lost.
House illicit finance response
Rep. French Hill tells Politico that new money laundering provisions have been added to the digital asset market structure bill in effort to attract more support in the House and in Treasury. Politico’s Eleanor Mueller also reports, “Rep. Brittany Pettersen (D, CO) said earlier this month that she is also in talks with House Financial Services Chair Patrick McHenry (R, NC) on related legislation that could move separately.” Read more (subscription).
House Republicans quietly shop new text of crypto overhaul (Jan. 17) – Politico
what you should know: Rep. Pettersen was one of six Democrats to support the digital asset market structure bill during July’s HFS markup hearing. Missing from the House legislative agenda thus far is the rumored introduction by Rep. Sean Casten (D, IL) of the House version of the Digital Asset Anti-Money Laundering Act from Senator Elizabeth Warren (D, MA).
FSOC “designation” threat
CoinDesk’s Jesse Hamilton revisits the recent spotlight put on the Financial Stability Oversight Council (FSOC) and its ability to tag a business a “threat” – an ability that had been rescinded during the Trump Administation. The concern for pro-crypto advocates is that digital assets could be subjected to debilitating oversight.
Hamilton explains how the changing political winds has re-empowered FSOC: “At any time, the council could decide that one of the giants in the digital assets sphere – say, a stablecoin issuer such as Circle – could wound the wider financial system in the event of a failure, something akin to American International Group Inc.’s role in the mortgage collapse of 2008. When the FSOC affixes that tag on a business, it becomes a regulatory ward of the Fed, subjected to a number of compliance demands and supervision.” Read more.
what you should know: Earlier this month ,the House Financial Services (HFS) Subcommittee on Digital Assets, Financial Technology and inclusion hearing on FSOC’s tagging ability a.k.a. “designation” showed the partisan divide on this topic.
market structure progress
On Tony Edward’s Thinking Crypto podcast, Chamber of Digital Commerce policy executive Cody Carbone expects a push in Congress to bring the digital asset market structure bill (H.R. 4763 a.k.a. “FIT 21”) to the House floor for a vote as early as March or as late as August. Carbone observes that there has been “a little bit of a lull” in digital asset legislation momentum due to the ongoing Congressional funding drama. But behind-the-scenes, he sees progress in the House and a new draft of FIT 21 “very very soon.”
Nevertheless, if no vote happens by August recess, Carbone admits. “After August in an election year, nobody is really working in D.C. (…) They’ll be focusing solely on getting elected.” Hear Thinking Crypto podcast.
what you should know: Even though Democratic leadership in the Senate is unlikely to pick up any House bill tied to digital assets in the 118th Congress, the House floor vote – assuming “FIT 21” passes – would be a positive step forward.
still more tips
DOJ and SEC unveil charges in $1.9 billion HyperFund cryptocurrency fraud – CNBC
PayPal invests $5 million of its PYUSD stablecoin into Plaid-for-crypto startup Mesh – Fortune on Yahoo
Hong Kong sets licensed crypto exchange insurance requirement to 50% – Cointelegraph
Update on Senate Banking hearing this Thursday: “I’m told by a source close to the banking committee that Frank Abagnale is OUT and will no longer be a witness at this hearing, per a scheduling conflict. New Republican witness will be the American Bankers’ Association Paul Benda, a fraud / cyber expert.” – Brendan Pedersen, Punchbowl News on X