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regulator rift – state
The jockeying for position among regulators in crypto isn’t just between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) – it’s happening at the state level, too.
So says a comprehensive new article in Fortune by Leo Schwartz which looks at the growing brouhaha in New York State: The Office of the Attorney General and A.G. Letitia James (D) versus the New York Department of Financial Services (NYDFS) and its Superintendent Adrienne Harris (D), who supervises the pre-eminent state crypto regulation – the New York BitLicense. Read the article.
You could see this battle coming in the press release last week for the A.G.’s new crypto bill (a.k.a CRPTO). Nowhere was the NYDFS – a seemingly key partner for the Attorney General – mentioned as a willing participant in the new legislation. Only a former NYDFS Superintendent under former Governor Andrew Cuomo provided a glowing quote among the two dozen Democrats and organizations who backed introduction of the legislation in the release.
One Congressional Democrat is taking note. Rep. Ritchie Torres (D, NY), a member of the Congressional Blockchain Caucus in the last Congress, tells Fortune about his fears of a growing turf war in his state and its impact on effective regulation: “DFS is the most effective and exacting regulator of crypto not only in the country, but in the world. (…) As the old saying goes, why fix what ain’t broken?”
Will U.S. Senator Kirsten Gillibrand (D, NY), an ally of New York Governor Kathy Hochul (D), potentially weigh-in next?
regulator rift – national
The “anti-crypto” plan implemented by Democratic party leadership, which it apparently sees as winning strategy for the 2024 general election, could be seeping into New York State with A.G. James (who almost ran against Governor Hochul in 2022, but then pulled back) getting an opportunity to burnish her Democratic credentials.
In the meantime, NYDFS Superintendent Adrienne Harris (a Democrat, Hochul appointee and former Obama-era appointee to the U.S. Treasury) may be left in the lurch.
Harris’ performance at the stablecoin hearing last month appeared to contradict certain Democratic narratives such as crypto causing the fall of New York-based Signature Bank – she refuted this notion in her testimony.
In addition, Harris said at the hearing that New York State already had stablecoin regulations which seemed to catch House Financial Services (HFS) Ranking Member Rep. Maxine Waters (D, CA) off-guard. Waters now appears to be leading HFS Democrats in opposition to any stablecoin or digital assets-related legislation.
regulator rift – Dem regulators
Anybody notice how much quieter CFTC Chair Rostin Behnam (D) is these days versus SEC Chair Gary Gensler (D)?
Consider, for a moment, Behnam a “teammate” to Adrienne Harris and Gensler a “teammate” to Letitia James. The effects of FTX’s implosion last year and government’s relationship with digital assets is playing out among the head regulators.
There is no longer a Digital Commodity Consumer Protection Act (DCCPA) for Behnam to ride valiantly through Congress. The legislation co-sponsored by Senate Agriculture Chairwoman Senator Debbie Stabenow (D, MI) and Ranking Member Senator John Boozman (R, AR) and nuked by FTX CEO Sam Bankman-Fried remains in a radioactive trash heap – the same heap containing the necessary bipartisanship that could pass legislation in a divided Congress.
Moreover, the FTX-DCCPA drama served Chair Gensler’s interests to grab the regulatory reins for digital assets and thereby grab more power within the Democratic party.
No legislation = Howey Test, Gensler’s trusty steed.
A.G. James may need the CRPTO bill to recapture the crypto “horse” Superintendent Harris rides with the New York BitLicense. Governor Hochul could help Harris. Enter the Biden Administration and national Democratic leadership which could be blessing James.
This is all part of the bigger battle for control of the Democratic party between progressive and more moderate members?
use case – blockchain for DoD
The company provides a high-level explanation of the use case in play: “…the DoD was looking for a secure way to effectively and efficiently transfer confidential data across their Defense Transportation System commercial airlift partners without sacrificing cost or speed.”
Enter blockchain tech -and there’s even an intersection with cryptocurrency according to the company: “Decentralization of data assurance is not a common use case for Blockchain because traditional decentralized networks require high transaction fees to utilize and are also unable to cryptographically secure much more than a cryptocurrency ledger balance. Constellation uses prioritization fees on top of a fee-less network to accommodate use cases like the DoD use case which provides network incentives with flexibility.”
Miami and crypto
On the eve of next week’s Bitcoin 2023 Conference, a Wall Street Journal article dissects Miami as a hub for crypto interest and innovation and finds that Miami Mayor Francis Suarez (R) is still supportive but, “Many other Miami officials and business leaders have soured on crypto, no longer counting on it as a main driver in the city’s quest to become a world-class business and financial center. Even some locals who are part of the city’s digital currency economy are openly critical.” Read more.
Appearing at this week’s Financial Times crypto conference, Binance chief strategy officer Patrick Hillmann looked beyond his own company and empathized with competitors. Hillman “pointed to the Securities and Exchange Commission’s actions against rival exchange Coinbase over alleged securities laws violations as a sign of how “the US right now is in this weird place.'” He added that it was difficult to do business in the U.S. Read more.
Hillman’s company would appear to have a unique understanding of crypto business efficiency given the charges brought by the Commodity Futures Trading Commission (CFTC) against Binance in March.
robinhood’s crypto bullseye
Robinhood reported its Q1 2023 earnings yesterday as revenue increased by approximately 5% and the company’s net loss was in-line with Wall Street expectations. The company also revealed more on cryptocurrency momentum as Blockworks reports, “The crypto assets Robinhood custodies for clients stood at $11.5 billion through the end of the first quarter – booking a notable increase from its $8.4 billion through year end 2022.” Read more.
Meanwhile, Robinhood has been informed by the SEC and FINRA that its being investigated for “the firm’s compliance with recordkeeping requirements, including employees’ use of ‘off-channel communications.'” Read more from Bloomberg. Traditional banks ran afoul of similar communication rules last year says Bloomberg.
still more tips
SEC Charges Operators of Dozens of Websites with Offering Fraud Involving Crypto Assets – SEC.gov
EY OpsChain ESG to provide platform for emissions and carbon credit traceability through tokenization – press release
BlockFi Customers Can Be Repaid $300M Held in Custodial Accounts, Judge Says – CoinDesk
Crypto Companies Test the Public Markets – The Wall Street Journal
‘We screwed up’: Coinbase chief legal officer apologizes after Pepe newsletter controversy – The Block
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