Category: News

we gave you legislation

Coming out of yesterday’s House Financial Services (HFS) hearing with U.S. Treasury Secretary Janet Yellen (see more), HFS Chair Patrick McHenry (R, NC), House Ag Chair Glenn “GT” Thompson (R, PA), Rep. French Hill (R, AR) and Rep. Dusty Johnson (R, SD) want to know… what’s going on??? Read the release.

In a press release and Congressional letter, the quartet note that digital asset legislation has been created by Congress in the form of the digital asset market structure bill or “FIT 21.” But, FSOC and Secretary Yellen aren’t helping in spite of making the call for Congressional legislation to fill regulatory “gaps” in the first place.

The Securities Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) continue to wrestle over jurisdiction with SEC Chair Gary Gensler asserting that nearly all crypto assets are securities, which has further muddied the regulatory waters. Read the letter.

Congress wants answers to its five questions by February 20. Continue reading “House Republicans Question FSOC About Their Interests In Digital Asset Market Structure”

Secretary Yellen – SAB 121

The annual report of the Financial Stability Oversight Council (FSOC) will bring U.S. Treasury Secretary Janet Yellen (D) in front of the House Financial Services Committee today and the Senate Banking Committee on Thursday.

The HFS Committee Majority Republicans made clear yesterday on the hearing’s web page that Staff Accounting Bulletin 121 (SAB 121) – slammed by the GAO on October 31 and now under pressure from a bicameral Congressional Review Act resolution introduced last week – will be a topic of discussion with the Secretary today.

The joint resolution signed by HFS Committee member Rep. Mike Flood (R, NE) is available for download along with the hearing’s memo.

Last week, Rep. Flood and Senator Cynthia  Lummis (R, WY) and Rep. Wiley Nickel (D, NC) introduced the unsigned, bicameral joint resolution.

The hearing starts at 10 a.m. ET in the Rayburn House Office Building – livestream here.

more tips:

• • H.J.Res.109 – Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Securities and Exchange Commission relating to “Staff Accounting Bulletin No. 121”. – Congress.gov
  • S.J.Res.59 – A joint resolution providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Securities and Exchange Commission relating to “Staff Accounting Bulletin No. 121”. – Congress.gov

what you should know: The argument goes that the inability for “stable” and well-regulated traditional finance institutions to custody crypto due to SAB 121 has led to instability for crypto. And that’s fine for many anti-crypto advocates who would like to see digital assets go away. Continue reading “Hearing With Secretary Yellen To Include SAB 121 Joint Resolution; Fake IDs And Blockchain”

custody rule concerns

Politico’s Eleanor Mueller learned late last week that new letters were sent to Rep. Andy Barr (R, KY) from the Office of the Comptroller of the Currency’s  (OCC) Acting Comptroller Michael Hsu and Federal Reserve Chair Jerome Powell which “voiced concerns over the SEC’s proposed rule (Feb, 15, 2023: ‘Safeguarding Client Assets’ – 432 pages!) that would expand custody regulations to crypto and said they’d conveyed those to the agency. ” Read more (subscription).

Barr is Chair of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy.

At a House Financial Services (HFS) Oversight hearing of the prudential regulators in November, Hsu and Vice Chair Michael Barr first suggested they had issues with the proposed rule. (See 1:05:25 of the November HFS oversight hearing. Originally flagged by Punchbowl News Brendan Pedersen in November.)

more tips:

• • See Chair Gary Gensler‘s statement last February 15 about the proposed rule here.
  • See SEC Commissioner Hester Peirce‘s statement of concerns about the rule last February 15 here.

what you should know: This is NOT the same as  Staff Accounting Bulletin 121 (SAB 121) which blew up last week when Senator Cynthia Lummis (R, WY) and Reps. Wiley Nickel (D, NC) and Mike Flood (R, NE) introduced a Congressional Review Act resolution to overturn SAB 121. Rather, the “Safeguarding Client Assets” rule as it is known is yet another vector meant to keep crypto custody (and arguably, crypto in general) out of the traditional financial system and prevent instability according to anti-crypto advocates. Continue reading “Prudential Regulators Getting Nervous About SEC Rulemaking; Bitcoin Mining Scrutiny Ramps Up”

AI + blockchain

In a post on his personal blog, Ethereum co-creator Vitalik Buterin published an intriguing new position paper: “The promise and challenges of crypto + AI applications.”

As the title suggests, Mr. Buterin sees a convergence with the two technological opportunities and sets up his argument saying that blockchain is a platform for “games,” in a very broad sense of the word.

He sees four main “game” categories at the intersection of blockchains and AI including:

1. 1. “AI as a player in a game [highest viability]: AIs participating in mechanisms where the ultimate source of the incentives comes from a protocol with human inputs.”
   2. “AI as an interface to the game [high potential, but with risks]: AIs helping users to understand the crypto world around them, and to ensure that their behavior (ie. signed messages and transactions) matches their intentions and they do not get tricked or scammed.”
   3. “AI as the rules of the game [tread very carefully]: blockchains, DAOs and similar mechanisms directly calling into AIs. Think eg. ‘AI judges'”
   4. “AI as the objective of the game [longer-term but intriguing]: designing blockchains, DAOs and similar mechanisms with the goal of constructing and maintaining an AI that could be used for other purposes, using the crypto bits either to better incentivize training or to prevent the AI from leaking privacte data or being misused.”

Read the post.

what you should know: What Congress is working on today with digital assets and blockchain legislation will have arguably much bigger and broader implications for the Country’s future – it’s not “just about crypto.” Today’s blockchain legislation will evolve into tomorrow’s AI + blockchain legislation. Continue reading “Ethereum Co-Founder Buterin Sees AI, Blockchain Future; Crypto Gets Its PAC On”

letter – digital wallet rule

In a letter to the Consumer Financial Protection Bureau (CFPB) and Director Rohit Chopra (D), Republican House Financial Services (HFS) lawmakers urged the agency to reopen the comment period for the proposed rule (see it):  “Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications.” Comments closed on January 8 and would impact digital wallets for crypto among other non-bank areas.

Read the letter.

HFS Chair Patrick McHenry (R, NC), Rep. French Hill (R, AR), Chair of the Digital Assets, Financial Technology and Inclusion Subcommittee and Rep. Mike Flood (R, NE) signed on to the letter and said the rule would have “unknown effects on the digital asset ecosystem” among other reasons.

Given recent run-ins with the CFPB, it’s not surprising that HFS Republicans believe the CFPB and Biden-appointee Chopra are making a clear overreach. But, the industry has made it clear that the proposed rule is not gonna work.

Among many comments previously delivered in response to the rule, Paradigm government relations executive Alexander Grieve wrote on his company’s blog that problems with the new rule include:

1. 1. Overreach by the CFPB where it has no jurisdicton;
   2. “Broadly worded to capture crypto wallet software service providers that do not custody cryptoassets”;
   3. “The CFPB failed to adequately perform a fulsome cost-benefit analysis of the proposed rule.”

Continue reading “New CFPB Rule Impacting Digital Assets Gets Congressional Letter; Treasury, Crypto And Illicit Finance”

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. Continue reading “Hill And Himes On Bipartisan Digital Asset Efforts In The House; DeFi Defense Paper”

CFTC: ETFs aren’t regulations

It may not have been under his commodities oversight purview, but Commodity Futures Trading Commission Chair Rostin Behnam (D) is concerned that the recent approval of Bitcoin spot market Exchange-Traded Funds (or Products) is unlocking unnecessary risk for market participants.

At an American Bar Association meeting on Friday, Behnam said in a speech (read it) : “I fear that the regulatory approval of bitcoin ETPs introduces risk that, in spite of yellow flags, market participants, retail and institutional alike, may mistake the technical approval of a product—with actual regulatory oversight of the cash commodity digital assets. The concerns I have publicly voiced for the better part of six years regarding the digital asset commodity spot market have only become magnified. The need for federal legislation over cash market digital assets has never been more critical, and I will continue my call for action.”

more tips:

BlackRock’s Bitcoin ETF First to Reach $2B in AUM – CoinDesk

what you should know: In Behnam’s mind, you can’t approve a product before you approve the regulation around the product. Meanwhile, Democratic leadership led by Securities and Exchanger Commission (SEC) Chair Gary Gensler is saying that the regulation exists already for digital assets – securities law – and all crypto tokens are securities. Behnam has clearly broken from the current Dem leadership point-of-view exhibited by his past support of DCCPA and his stated belief that some tokens are commodities including stablecoins.

blockchain’s big use case: AI

The public form is now available for the requests for comment on the use of AI (artificial intelligence) in CFTC-regulated markets. All comments are due by April 24 here. Continue reading “ETFs Make Regulation More Important Than Ever Says CFTC Chair; Brown AML Bill Updates”

digital assets delayed

House Financial Services Chair Patrick McHenry (R, NC) appeared on CNBC’s Squawk Box yesterday morning and expressed frustration with his caucus as well as a defiant hope that it was still possible to move legislation this year in spite of Congressional gridlock. Digital legislation is delayed in 2024, most assuredly.

From the interview:

Chair McHenry: “Look when the House basically attempted to commit political suicide – Republicans in the House tried to commit political suicide in the fall – it gummed up three or four months of House Floor action. So, I’ve got major policies in capital formation, data privacy and crypto that we haven’t moved across the House floor. And I intend to get those moves across the House Floor this year. We can still do big deals -we can still do big deals, even amidst the longest presidential campaign, general election campaign, in American history. We can still get these things done and build consensus and I think there’s a need for market structure on crypto…”

Joe Kernen, CNBC: “The recent ETF and watching the SEC Chair sort of…. kicking and screaming, really …. after, you know, the court said one thing… ‘That’s no way to run a railroad, is it?'”

Chair McHenry: “It’s ineptitude and [the SEC] went kicking and screaming after the courts demanded they take this action. Now, you have more legitimate money coming in, flowing into crypto, some structure being provided to a new asset class that has its problems and needs some clarity – and under federal law – to remedy it.” Continue reading “McHenry Speaks: Digital Assets Delayed; Ethereum ETFs Delayed By SEC”