Peirce on digital assets
The agenda for yesterday’s Security Trader Association conference in Washington, D.C., included another regulator who discussed digital assets regulation. Securities and Exchange Commission (SEC) Commissioner Hester Peirce (R) participated in an on-stage interview and covered a range of crypto-related topics that built on the need for digital assets legislation outlined by Commodity Futures Trading Commission Chair Rostin Behnam (D) the previous day.
On a question about innovation leaving the United States, Commissioner Peirce said, “I think the idea that you are comfortable driving an entire set of innovation outside the US is really a concern. And people will say to me, ‘Well, projects aren’t actually moving out of us. Look, you just were in San Francisco, you met with a ton of projects.’ But, what they’re telling me is that – yes, they’re in the U.S., but they’re they’re not letting any U.S. persons participate in any anything they’re doing. It’s all happening overseas. And, that’s the problem. I think we don’t know which pieces of it will last and end up changing the way we do things, but I suspect some of it will and I would rather have that innovation happen here.”
The Commissioner’s next response recalled themes of the Q&A grilling by Rep. Ritchie Torres (D, NY) of SEC Chair Gary Gensler at the House Financial Services Committee SEC Oversight two weeks ago. Gensler admitted Pokemon cards were not securities – though tokenized Pokemon cards gave him pause.
Yesterday, rather than Torres’ use of Pokemon cards, Peirce chose chinchillas.
She said, “I think the SEC – and this is part of what’s really bothered me – the Commission has been very imprecise in its legal analysis, which is part of the reason people are confused, I think. We’ve been analyzing these token offerings using the Howey Test, which can be used for lots of different things. You can use it for chinchillas. You can use it for whiskey casks. You can use it for crypto. But applying the Howey Test to a chinchilla doesn’t turn a chinchilla into a security… ever. It may be that that chinchilla was being offered as part of a securities offering. But, the chinchilla doesn’t carry around a little backpack with the investment contract in it no matter where it goes. And so I think that the same logic applies to tokens. We have to have a way of thinking about the token separately from the investment contract.”
Finally, though not directly referencing Grayscale’s battle to get Bitcoin spot market ETF (Exchange Traded Fund) approval from the SEC, Peirce said, “…if you had told me five years ago that we would not yet have have approved a Bitcoin a spot Bitcoin ETP (Exchange Traded Product). I would have fallen out of my chair. But here we are.”
Rep. Steil on digital assets
Also speaking in a recorded interview at the Security Trader Association conference was Rep. Bryan Steil (R, WI) who is a member of the House Financial Services (HFS) Committee and took over the seat of former House Speaker Paul Ryan in Wisconsin.
Rep. Steil provided the broad scope of expectation that he saw for digital assets:
“On the digital assets agenda of HFS: One of the things I think about is the way that we’re talking about crypto right now – it’s probably how we talked about the Internet in the early 90s. You talked to people about ‘investing in the Internet.’ Now, as we look back, we have a much better understanding of what the Internet is, how it works.”
“I think we’re at an early stage in crypto and we’re using the term in a blanket way to cover a lot of different things that will ultimately, though, underpin Web 3.0 and a transformational way to digitize and tokenize value. And so making sure that we get the rules of the road right is really important. And making sure that we allow that development to occur in the United States is really important. But then to get the government to step out of the way and allow the private sector to determine the best use for this.”
“So, on the House Financial Services Committee, we put forward really the first substantive legislation as it relates to cryptocurrency. It does two key things: provides a framework for how cryptocurrencies can come online; and then also a framework for stablecoins – cryptocurrencies that are truly and substantively backed up by cash and cash equivalents. And so, allowing that sandbox, in particular, as it relates to stablecoins allows us to begin the development work in the United States in a regulatory framework that gives people confidence and stability. And then I do believe that it will have a critical role. What that will look like – my crystal ball is no better than anyone else’s. But I do think that that is a real substantive and meaningful step forward that we took and look forward to having this legislation, move all the way through and ultimately, hopefully to be signed into law.”
Rep. Steil also opined on Chair Gary Gensler of the SEC:
“Chairman Gensler has been running a very aggressive rulemaking process. So much so that it really gives me concern about how its operating. And I look at a couple of principles here that I think should give us pause.
What are the problems that the Securities Exchange Commission is trying to solve under some of the rules that they’re moving forward. Two, how do all these rules interact with each other the number and volume of rules – many of them are quite significant – they’re moving through the Securities Exchange Commission. The understanding of how all of these rule changes interact, I don’t think has been given enough study and enough consideration.
And then the third piece is the economic analysis that needs to be run when rules are going forward. With one of the more recent rules, the economic analysis head gave a massive range as to what the economic impact would be, which to me says that that economic impact analysis was not sufficiently done. When you question Chairman Gensler on these topics – and he’s come before the Financial Services Committee now multiple times – he’s often not terribly straightforward in answering the questions. I’m concerned that he’s driving forward an agenda that doesn’t really align with the core mission of the Securities Exchange Commission, as well as what the unintended consequences would be of many of these rules being implemented.”
what if? Speaker McHenry
Yesterday morning, CBS News reporter Robert Costa said that if Rep. Steve Scalise (R, LA) did not get enough votes to become the next Speaker of the U.S. House of Representatives, current Speaker pro tempore Rep. Patrick McHenry (R, NC) is rumored to be next in line by some. Costa tweeted on X, “Keep an eye on McHENRY. If Scalise fails to get necessary votes today, several House Rs tell me this morn there will be push to have him emerge as consensus pick who can win over everyone from Mace to moderates. Yes/but… Emmer & Jordan might also be in play in such a scenario.”
If McHenry were to become Speaker, it would seem logical that he would vacate his Chairmanship of House Financial Services (HFS) and the current Vice Chair of HFS, Rep. French Hill (R, AR), would take over as Chair. The loss of one Republican (McHenry) might also mean the addition of a new Republican HFS committee member.
Another idea by Republicans could be to keep Rep. Hill in his current roles so that he can continue to concentrate on digital assets – a key part of the House Republican agenda. Perhaps, a junior HFS member such as the aforementioned Rep. Bryan Steil (R, WI) – who has been in Congress since 2019 and brings private sector experience – may make sense to administer and drive the broader Republican agenda in partnership with Members across the Committee. At the STA conference, Steil reiterated his “love” for working on HFS and public policy. No doubt other Members would express the same “love” for being a part of the powerful committee.
FCA on DLT
In a speech by Ashley Alder, Chair of the UK’s Financial Conduct Authority (FCA), supporting innovation remained a consistent goal for the FCA and that preparation was being made for tokenization. Adler said, “…on innovation, the discussion paper (see it) touched on how fund managers might adopt distributed ledger technology (DLT) to offer fully digitised funds to the public. Since then, we’ve been working with the Technology Working Group, which sits under the Treasury’s Asset Management Taskforce, on a blueprint for fund tokenisation. The working group will publish this later in the year. Many firms see use cases for distributed ledger technology, even if direct marketing of tokens may be some time off. So, we’ve already held a tech-sprint with the industry to test policy initiatives and the rule changes needed to support work on fund tokenisation.” Read the full speech.
terrorist financing rebuttal
Fortune Crypto editor Jeff John Roberts revisited on his publication the terrorist financing story run by the Wall Street Journal earlier in the week which was titled “Hamas Militants Behind Israel Attack Raised Millions in Crypto.” The story referenced data from blockchain analytics firm Elliptic (see Ellliptic’s blog post on Hamas).
Roberts provides a three-pronged defense of why he says crypto did not have “a significant connection to the Hamas atrocities” in Israel last weekend. He concludes, “… if you still think of crypto as a tool for terrorists, consider the following: I was in the course of reporting on a crypto startup in Tel Aviv that has was on the cusp of announcing a funding round worth tens of millions. The announcement has been delayed because the founders, both veterans, have put it off as they turn to defending their country. They are hardly the only ones in this position as numerous other Israeli crypto startups are navigating how to balance grieving, employees being drafted, and running their business.” Read more.
Politico reports that Senate Banking Chair Sherrod Brown (D, OH) may want to review crypto’s role in the Israel attacks in a hearing later this month. Read that one. House Financial Services has already planned a hearing on Iran sanctions for October 19. HFS Democratic leadership may weave crypto financing into this hearing, too.
“It’s alarming and should be a wakeup call for lawmakers and regulators that digital wallets connected to Hamas received millions of dollars in cryptocurrencies.” (Wednesday) – Senator Elizabeth Warren (D, MA) on X
SAFER Banking Act
In an op-ed in CoinDesk, Chamber of Digital Commerce policy executive Cody Carbone discusses the recent passage of the SAFER Banking Act [S.2860] sponsored by Sen. Jeff Merkley (D, OR) and Sen. Steve Daines (R, MT) which passed out of a Senate Banking Committee markup two weeks ago.
The legislation has been initially aimed at helping cannibis businesses get banked. With the bill’s Section 10 in particular, Carbone now sees the opportunity to address “Choke Point 2.0,” and compliments Senator Kirsten Gillibrand (D, NY) and Senator Cynthia Lummis (R, WY) on X for “addressing this issue”.
On the bill’s digital asset implications, he writes in CoinDesk, “It not only promises to end the stifling practices that have hampered the growth of legitimate digital asset businesses but also paves the way for a more inclusive and innovative financial ecosystem in the U.S. By emphasizing that personal beliefs or political motivations have no place in determining access to financial services, it ensures that lawful businesses are not unjustly targeted.” Read it.
CFTC Charges Former Chief Executive Officer of Digital Asset Platform with Fraud in Massive Commodity Pool Scheme – CFTC.gov
Statement of Commissioner Caroline D. Pham Regarding Enforcement Action on Crypto Lending – CFTC.gov
Statement of Commissioner Kristin N. Johnson Regarding CFTC Charges against Voyager Chief Executive Officer – CFTC.gov
FTC Reaches Settlement with Crypto Company Voyager Digital; Charges Former Executive with Falsely Claiming Consumers’ Deposits Were Insured by FDIC – FTC.gov
still more tips
“Oversight Committee Chairman Rep. James Comer (R, KY) threatens subpoena power over Gary Gensler and the SEC in his latest letter…” – Eleanor Terrett, Fox Business on X
Coinbase’s Quarterly Crypto Trading Volume Likely Lowest Since Before Public Debut – Bloomberg
Opinion: The ‘proof of reserves’ myth in crypto-accountancy – Accounting Today
Crypto lending invalidated by Chinese court in second landmark ruling – Cointelegraph