Prudential Regulators Join Oversight Hearings This Week; Tornado Cash Decision Today

this week – prudential hearings

Prudential regulators – the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board of Governors (Fed), the Federal Deposit Insurance Corporation (FDIC) – will be meeting with the House Financial Services (HFS) Committee on Wednesday and Senate Banking on Thursday.

There are no digital assets topics on the HFS Committee’s memo (PDF), but the prudential group has been active in the digital assets discussion with the Committee in the past.

In March 2023 (letter) and then again in November 2023 (letter), HFS Chair Patrick McHenry (R, NC), and Senator Cynthia Lummis (R, WY) spearheaded an effort to get the prudential regulators to admit that SAB 121 was a bad idea, in so many words.

The House passed a resolution last week rescinding SAB 121 – the Senate, and then the President will be next.

Scheduled to appear on Wednesday at the HFS hearing are:

    • Michael Barr, Vice Chair, Federal Reserve
    • Martin Gruenberg, Chair, FDIC
    • Michael Hsu, Acting Comptroller, OCC

what you should know: The literal “elephant in the room” for both hearings will be FDIC Chair Martin Gruenberg and his resignation which Republicans want and Dem leadership does not want (such as Senate Banking Chair Sherrod Brown (D, OH) – read) over the recent sexual harassment scandal at the FDIC. Read about it in the WSJ.

more: DOJ, money transmission

Following up on news from Punchbowl on Sunday, Senator Cynthia Lummis’ (R, WY) office published a press release yesterday about the Congressional letter penned by the Senator and Senate Finance Chair Ron Wyden (D, OR) expressing concerns to Attorney General Merrick Garland. The Senators say that the DOJ’s recent interpretation of what constitutes a money transmitter – rules originally set up by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) – are troubling.

See the May 9 letter.

In yesterday’s release, the Senators make clear the implications for digital assets are unacceptable. Sen. Lummis says: “I remain deeply committed to ensuring every American has the ability to self-custody their assets, and the transformative emerging Bitcoin and crypto asset industry has the ability to legally operate in this country. The right to store your private keys in your own wallet must be protected.” Read the release.

what you should know: The Senators cite the DOJ’s actions in the current Samourai Wallet and Tornado Cash cases as inspiration for the letter.

today – Tornado Cash

Speaking to themes raised by Sens. Lummis and Wyden, a decision is expected today in a Netherlands court regarding money laundering charges against one of the founders/developers of Tornado Cash, Alexey Pertsev, a crypto mixer which anonymizes crypto transactions.

DL News set the stage yesterday: “Many crypto experts say nothing less than the future of tech development and privacy is at stake. (…) If [Pertsev] is found guilty, experts expect a ‘chilling effect’ on the global open source community. Developers may fear writing code if it is misused, and investment may dwindle.” Read an overview.

more tips:

The $2.3 Billion Tornado Cash Case Is a Pivotal Moment for Crypto Privacy (subscription) – Wired

tomorrow – Digital Chamber

Tomorrow in Washington D.C., industry organization Digital Chamber will be producing its annual summit with scheduled Congressional participation from across both sides of the aisle including Senators Cynthia Lummis, Kirsten Gillibrand (D, NY), Ted Budd (R, NC) and Ted Cruz (R, TX); HFS Chair Patrick McHenry; Reps. French Hill (R, AR), Wiley Nickel (D, NC) and Warren Davidson (D, NC); and, SEC Commissioner Hester Peirce (R) and CFTC Commissioner Caroline Pham (R).

See speakers and agenda – including robust participation from Congressional staff.

what you should know: Democrats may be starting to shy away from a public display of affection for digital assets as the topic appears to become more partisan (see former President Donald Trump‘s embrace of crypto). Dems likely want to appear steadfast in support of their candidate for President, Joe Biden.

natsec and mining

Yesterday, President Joe Biden in coordination with U.S. Treasury issued an order blocking a cryptocurrency mining currently residing in Wyoming – and near an Air Force base – by a company with Chinese backing. The order forces the divestment of property operated as a crypto mining facility near the Francis E. Warren Air Force Base. It also forces the removal of certain equipment owned by MineOne Partners Ltd., a firm that is partly owned by the Chinese state

The AP reports that the “divestment order was made in coordination with the U.S. Committee on Foreign Investment in the United States (see Treasury’s CFIUS) – a little-known but potentially powerful government agency tasked with investigating corporate deals for national security concerns…” Read more.

more tips:

    • Statement on the President’s Decision Prohibiting the Acquisition by MineOne Cloud Computing Investment I L.P. of Real Estate, and the Operation of a Cryptocurrency Mining Facility, in Close Proximity to Francis E. Warren Air Force Base – Department of Treasury

next year

“Lawmakers’ crypto market structure bill stands ‘no chance’ this Congress, but sets them up for next year: TD Cowen” – The Block

industry org update

Blockchain Association policy executive Ron Hammond gave a DC update to his followers on X yesterday regarding the flurry of crypto-related legislation votes in the House and the SAB 121 resolution [S.J.Res.59] vote expected sometime this week in the Senate. Hammond also addresses the political machinations in play and writes, in part, “But [Democrats] are now in a tough spot. They have deferred their crypto policy to the SEC. That SEC has gone after nearly every US crypto company without providing any rules for compliance in 5 years. It’s a narrative they have been losing and the votes in Congress will prove that.” Read more context.

SEC and DEBT Box

In a brief to avoid dismissal of its case against Debt Box with prejudice, [SEC] includes a remarkable admission that it did not follow its own typical Wells process when it refused to tell us what assets would be charged as securities: “The Wells process is designed to aid the charging decision for a specific potential defendant. The SEC staff typically provides a thorough explanation of the evidence it would use to prove potential charges against a particular person or entity.” – read more from Coinbase chief legal officer Paul Grewal on X.

still more tips

MARKUP NOTICE: Full Committee Markup of Various Measures –

Crypto PACs are pouring money into 2024 elections – Axios

Opinion: Why, for Some, Crypto Is the Defining Political Issue of Our Times – CoinDesk

Uniswap CEO warns US President to reverse course on crypto policies – Cointelegraph