Hearings Could Impact Digital Assets This Week; Coinbase Versus SEC – The Last Stand?

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two hearings this week

They may not be on digital assets exactly, but this week’s hearings by Senate Banking and House Financial Services on the recent banking crisis could bubble up issues related to digital assets such as reasons behind the crypto carve-out of Signature Bank post-insolvency. Government skeptics will be on the lookout for suggestions of Choke Point 2.0.

10 a ET, Tuesday, March 28: “Recent Bank Failures and the Federal Regulatory Response” – Senate Banking Committee 

Witnesses include The Fed’s Michael Barr, U.S. Treasury’s Nellie Liang and FDIC Chair Martin Gruenberg. More info and live video will be here.

10 a ET, Wednesday, March 29: “The Federal Regulators’ Response to Recent Bank Failures” – House Financial Services (HFS) Committee 

Witnesses include Barr, Liang and Gruenberg. See more here.

House Republicans are already asking questions of U.S. Treasury Secretary Janet Yellen regarding Federal Stability Oversight Council’s (FSOC) responsibility amidst the banking criss. See the letter (PDF) from HFS Subcommittee Chairs Rep. Andy Barr (R, KY) and Rep. Bill Huizenga (R, MI).

institutional crypto custody

NASDAQ plans on rolling out a new digital assets custody product before the end of June according to Bloomberg. NASDAQ CEO Adena Friedman tipped her company’s hand on digital asset custody plans last September saying in a press release, “The technology that underpins the digital asset ecosystem has the potential to transform markets over the long-term. To deliver on that opportunity, our focus will be to provide institutional-grade solutions that bring greater liquidity, integrity, and transparency to support the evolution.” Read more.

Blockworks notes that there appears to be a growing wave of institutional investor interest which companies like NASDAQ and BNY Mellon (announced a custody product for Ether and Bitcoin in October) want to capture. More here.

anti-cbdc legislation grows

On Friday, Senator Mike Lee (R, UT) re-entered the anti-CBDC (Central Bank Digital Currency) discussion with his “No Central Bank Digital Currency Act” – a re-introduction from the 117th Congress. The legislation’s one-pager for the 118th Congress is here (PDF). In a press release, Senator Lee said, “The United States doesn’t need to create a Central Bank Digital Currency to know it is a bad idea. We’ve seen this play out in China with the digital Yuan.” Read Lee’s release.

The anti-CBDC movement fits well with anti-China rhetoric on Capitol Hill currently. But so far, only Republicans seem to be biting on the anti-CBDC message. Democratic participation is perhaps seen as pushing back on U.S. Treasury and the Biden Administration and, therefore, rocking the Democratic “boat.”

Other recent anti-CBDC legislation introduced by Republican members of the 118th Congress includes:

Last week, Rep. Warren Davidson (R, OH) chimed in with an anti-CBDC letter of his own focusing on what he sees as state-level CBDC efforts.

Comparing Lee’s and Emmer’s bills, think tank Cato Institute comments, “Senator Lee’s bill wouldn’t just establish checks on the Fed. The bill also identifies the possibility that that the Treasury could use its authority to issue a CBDC and, therefore, applies the same checks on the Treasury.” Read more analysis from Cato.

the reckoning: SEC v. Coinbase

The Wall Street Journal reviews the possible outcomes of a pending enforcement action by the Securities Exchange Commission announced this week in the form of a Wells notice delivered to Coinbase. The significance of the action, whatever form it takes, seems lost on no one in that Coinbase is the largest exchange in the United States.

Neel Maitra from law firm Wilson Sonsini tells the WSJ, “’The implications for the crypto business are very significant. (…) Much will depend on the precise form that the SEC’s potential action takes.” Read it.

Other than the exact charges to be ultimately delivered, the other big unknown is the timetable for litigation to play out – it could be years, which could end up leaving U.S. crypto companies in a losing position (or a winning position according to anti-crypto advocates) regardless of the outcome.


Federal reserve reservations

Perhaps eager to shoot down criticism that the Federal Reserve operates without transparency, the Fed published on Friday a redacted version of its denial of application by Wyoming crypto bank Custodia Bank, Inc. to become a member of the Federal Reserve System. The Fed first publicly notified Custodia about the rejection on January 27.

An excerpt of the Fed’s rejection letter:

“In general, the Board has heightened concerns about banks with business plans focused on a narrow sector of the economy. Those concerns are further elevated with respect to Custodia because it is an uninsured depository institution seeking to focus almost exclusively on offering products and services related to the crypto-asset sector, which presents heightened illicit finance and safety and soundness risks.”

See Custodia’s redacted denial of application from the Fed (PDF)

Unfazed, Custodia Bank CEO Caitlin Long responded swiftly on Twitter saying, “The [Federal Reserve] just reiterated its conclusion, in the middle of a banking crisis it did not see coming, that a bank holding cash to back 108% of deposits is unsafe & unsound–while it continues to believe banks holding cash to back only about 6% of deposits are safe & sound.”

Tip: From Friday –  Barr, Huizenga, Kim Demand Clarity on Federal Reserve Supervisory Activity Preceding Recent Bank Failures

accounting for crypto

The Federal Accounting Standards Board (FASB) released its Accounting for and Disclosure of Crypto Assets framework last Thursday.  Get the 37-page document here. Comments are being accepted for the next 75 days.

KPMG offers a breakdown of the proposed Accounting Standards Update (ASU) saying the update would “create Subtopic 350-60 (crypto assets), specifying new accounting, presentation and disclosure requirements for crypto assets within its scope (e.g. bitcoin and ether).” Read more from KPMG.

Crypto accounting solutions firm TaxBit offers its analysis, too, saying in part, “Cryptocurrency assets will be reported at Fair Value – ending frustrating impairment charges – with certain exceptions. Non-fungible tokens (NFTs), issuer tokens, and wrapped tokens are not within the scope of this project and will continue to require impairment calculations.” See more.

banking crisis benefits

A new report by a JPMorgan analyst says that the recent collapse of Signature Bank, Silvergate and Silicon Valley Bank could end up being a good thing for crypto firms generally.  CoinDesk quotes from the report: “The banking crisis could present an opportunity for some exchanges which could gain market share by offering banking services to crypto-native firms and investors.” Read a bit more.

commish speaks

Commodity Futures Trading Commission (CFTC) Commissioner Summer Mersinger gave a keynote speech at the International Women of Blockchain 2023 Web3 and Metaverse Conference last week and provided more color on her position on digital assets regulation.

She was hopeful saying, “In light of the opportunities that an innovative and groundbreaking technology like blockchain presents for the derivatives markets we regulate, my focus is on assuring that we at the CFTC take that mission seriously. (…) [We] simply need to look back at our history to see that we have successfully allowed substantial technological innovations in the past, which over time have made our regulated derivatives markets more efficient.  I believe we are nearing a similar inflection point for blockchain technology.” Read more.

Proof-of-Work committees

The full text of last week’s resolution in support of Proof-of-Work Bitcoin mining that was announced at Chamber of Digital Commerce’s DC Blockchain Summit by Rep. Pete Sessions (R, TX) and now H.Res.238, as it is known, is available here on Congress.gov.

“Expressing the sense of the House of Representatives regarding the importance of Proof-of-Work mining, used for certain cryptocurrencies such as Bitcoin, to the United States ability to achieve its energy goals and grow its economy,” begins the resolution. It has been referred to 4 House committees for future consideration: Energy and Commerce, Foreign Affairs, Financial Services, and Science, Space, and Technology. See a bit more.

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