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SEC funding questioned
Yesterday, House Financial Services (HFS) Chair Rep. Patrick McHenry sent a letter to House Appropriations Committee Chairwoman Kay Granger (R, TX) and Ranking Member Rosa DeLauro (D, CT). Focused on spending and the unspoken shadow of Congress’ debt ceiling debacle, the letter touches on several digital assets “hot button issues” involving the Securities and Exchange Commission (SEC) and its Chair Gary Gensler, a Democrat and Biden appointee.
“The Committee should prevent a budget increase for the SEC Enforcement Division. The SEC has already brought 130 enforcement actions against crypto assets using its existing budget. It does not need an additional 50 staff to add further uncertainty to this nascent industry,” wrote McHenry.
He also asks that Staff Accounting Bullletin (SAB) 121 “not be funded” which effectively cut off the regulated banking system from offering digital asset custody. The same “no funding” recommendation was made for the digital asset custody proposal whose comment period ended on Monday.
Given the Republican majority in the House, perhaps these recommendations make it through to the Senate and then collide with its Democratic majority. Or, the requests become part of a wider negotiation – say debt ceiling negotiations – where the Democratic majority in the Senate may be more willing to acquiesce?
President Joseph Biden may have publicly solidified his administration’s anti-crypto stance with a tweet from the @potus account yesterday. It read, “We don’t have to guess what MAGA House Republicans value. They’re telling us.”
And the attached graphic reads, “MAGA REPUBLICANS THINK CONGRESS SHOULD CUT [arrow] Tax Loopholes That Help Wealthy Crypto Investors. ($18 billion)” See it.
The “loophole” likely references the wash sale rule. Today, non-security crypto tokens such as Bitcoin can be sold in order to capture a tax loss and offset capital gains – and then immediately bought again. This is due to the “property” classification of crypto by the IRS currently.
With stocks, a 30-day rule applies between a sale (capture of a tax loss) and re-purchase of the same stock. The crypto “loophole” is applicable to any crypto investor regardless of wealth.
Is closing this “loophole” part of the debt ceiling negotiation strategy by Democrats?
For today’s joint hearing between the Digital Asset Subcommittees of House Agriculture and House Financial Services, a 6th witness has been added from the world of TradFi: Michael Blaugrund, Chief Operating Officer at the New York Stock Exchange.
Blaugrund says he’s in favor of a regulatory framework which is “adjusted to accommodate the marketplace for digital assets.” This breaks from the beliefs of SEC Chair Gary Gensler who believes the Howey test and existing regulatory architectures are enough – companies just “need to come in and register.”
Later in his prepared testimony, Blaugrund explains:
“The debate over regulatory jurisdiction for digital assets is vigorous and it is encouraging to see your two esteemed Subcommittees working together to consider these important questions. While we recognize that digital assets offer a unique investment opportunity from traditional securities, we believe there is a significant benefit to utilizing the existing framework for public securities trading and extending it to digital assets.
Ultimately, both the SEC and CFTC’s willingness to embrace dual-registration or substituted compliance, as the agencies have permitted in other contexts, may also be critical to the success of developing a transparent and trusted market for digital assets. Coordination between the two agencies would work to mitigate the costs, burdens and uncertainty that can arise when more than one regulatory regime is implicated. For a dual-regulatory framework to yield real results, however, the agencies must be committed to a shared set of objectives, even if they ultimately seek to achieve those objectives via different means.”
hear ye, hear ye
Today, 9:30 am – Joint Financial Services-Agriculture Subcommittee Hearing Entitled: The Future of Digital Assets: Measuring the Regulatory Gaps in the Digital Asset Markets – financialservices.house.gov
Today, 2:00 pm – Hearing Entitled: Federal Responses to Recent Bank Failures – financialservices.house.gov
Tomorrow, 10 am – Hearing Entitled: Oversight of Silicon Valley Bank and Signature Bank: GAO’s Preliminary Review – financialservices.house.gov
May 16, 10 am – House Financial Services Full Committee Hearing Entitled: “Oversight of Prudential Regulators” – financialservices.house.gov
whole lotta digital assets
Blockworks reports on PayPal’s most recent earnings report as the payments company reveals it’s holding a considerable amount of crypto: “The company indicated that it holds $943 million worth of customer assets in bitcoin , ether, bitcoin cash and litecoin (LTC) on its balance sheet.” PayPal offers a degree of protection for consumers currently not required by law, too. Read more.
Mastercard, PayPal and Robinhood dive deeper into crypto as industry shows ‘promise’ – TechCrunch (subscription)
crypto ads bill
The text of Senator Kyrsten Sinema’s (I, AZ) “Responsible Digital Asset Advertising Act of 2023” bill co-sponsored by Senator Cynthia Lummis (R, WY) has been made available on Congress.gov. It was originally introduced on April 27 and sent to Senate Banking.
The crypto ads to be covered in the bill:
“a communication that (…) relates to… (A) the desirability of purchasing or entering into a transaction for a digital asset; or (…) the availability of digital asset-related services; and (…) is widely available to the general public, as specified by rule of the Commissions; and”
“(B) includes any script, slide, handout, or other written (including electronic) material used in connection with a public appearance with respect to a digital asset or the availability of digital asset-related services.”
use case – financial data
Digital Asset, a financial and blockchain technology company under the umbrella of DRW Trading, launched Canton Network yesterday and touted itself as “the industry’s first privacy-enabled interoperable blockchain network designed for institutional assets and built to responsibly unlock the potential of synchronized financial markets.”
The network’s initial participants include BNP Paribas, Deloitte, Goldman Sachs, Microsoft, CBOE Global Markets, Moody’s and (former CFTC Chair Chris Giancarlo’s) The Digital Dollar Project among many.
The company says that its blockchain network will enable “financial institutions to experience a safer and reconciliation-free environment where assets, data, and cash can synchronize freely across applications.” Read the press release for more on the use cases and the DAML smart contract.
still more tips
Ex-Coinbase Worker Gets Two-Year Prison Term in First Cryptocurrency Insider-Trading Case – The Wall Street Journal
Crypto media firm Blockworks raises $12M at $135M valuation – Axios
Andreessen Horowitz’s State of Crypto report: Narrative over numbers – Molly White
Coinbase halts criminal-busting data service – Politico
Circle Provides Feedback to the SEC on Safe Crypto Custody – Circle
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