Narratives Meet At Senate Banking Hearing: Choke Point 2.0 Versus Crypto-Causes-Bank-Failures

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bank failure hearing

Today’s Senate Banking Hearing at 10 a.m., “Examining the Failures of Silicon Valley Bank and Signature Bank,” will include top executives from both banks and among the questions to be explored: “Did crypto cause the bank failures?” – a narrative pursued by some Congressional Democrats including House Financial Services (HFS) Ranking Member Rep. Maxine Waters (D, CA) at last month’s stablecoin hearing with New York Department of Financial Services Superintendent Adrienne Harris.

At today’s hearing, former CEO of Silicon Valley Bank (SVB) Gregory Becker (see prepared testimony),  former Chairman And Co-Founder of Signature Bank Scott Shay (see it) and Former President Signature Bank Eric Howell (see it) are schedule to appear. See the hearing page.

SVB’s Becker is the only bank executive to make explicit reference to crypto in his prepared testimony and he’s emphatic about crypto not being the cause of his bank’s demise. He writes, “SVB and Silvergate were very different banks, as Silvergate was a nearly 100 percent crypto focused bank while SVB only had around 3 percent of its deposits from crypto clients.” Silvergate was a U.S. bank holding company which provided crypto/fiat rails to crypto companies and which decided to “wind down” operations in early March after a bank run of its own.

The flip side to the “crypto causing bank failures” coin is Choke Point 2.0, where many Republicans – such as Senate Banking Committee member Senator Bill Hagerty (TN) – would argue that government has overreached and unfairly targeted crypto including federally-chartered banks facilitating crypto business.

mandamus shrugged

The Securities and Exchange Commission (SEC) responded late yesterday to Coinbase’s “petition for a writ of mandamus — asking the court to require the SEC to respond just yes or no to whether it will undertake rulemaking for our industry,” tweeted the company’s Chief Legal Officer Paul Grewal, who termed it a “maybe.” Read his thread. Grewal added Coinbase will deliver a formal response next week.

But, Blockworks’ Casey Wagner calls it a “no” in her article as the agency says in its brief, “Deliberating over the kind of significant changes sought by Coinbase, which could affect both crypto assets and the securities markets more generally, takes time – including, as here, time to weigh whether or not to initiate a rulemaking proceeding about such topics in the first instance. This is particularly true given the Commission’s active regulatory and enforcement agenda in this area…” Read that one.

more tips:

In re Coinbase, Inc., Petitioner – On Petition for a Writ of Mandamus to the Securities and Exchange Commission (PDF)  –

Gensler on innovation

SEC Chair Gary Gensler has never been one to shy away from metaphors in his monologues.

In a speech before the Atlanta Federal Reserve Financial Markets Conference yesterday titled, “Lessons from Mrs. O’Leary’s Cow”, Gensler tracks “fires” across recent U.S. financial history and finds hope with innovative technologies.

He said, “As it relates to the rise of the digital economy—and I’m not talking about the generally noncompliant crypto markets—we’ve already seen the effects of fintech and social media on significant parts of consumer finance and investing. It’s possible, particularly in light of the higher rate environment, that we might see consequential changes to the deposit and banking landscape.” Chair Gensler sees predictive analytics and artificial intelligence as particularly “transformative.” Read the speech.

more tips:

Decrypt reports on Gensler’s Q&A after the speech which included familiar positions by the SEC Chair. Read it.

And, see video from the session on the Atlanta Fed’s website.

DOJ targeting too-big-to-fail

Department of Justice’s Director of the National Cryptocurrency Enforcement Team, Eun Young Choi, has been asked by the Biden administration to set up a new DOJ unit targeting criminal misuse of digital assets reports The Financial Times.

In an effort to send a “deterrent message,” Choi said her new unit will put exchanges, “mixers and tumblers” under the microscope in an effort to crackdown on a lack of compliance Know-Your-Customer (KYC) and Anti-Money Laundering (AML) rules.

Choi was careful to note that any company, no matter how large, was subject to the enforcement efforts. She told the FT, “If a company ‘has amassed a significant market share in part because they’re [flouting] US criminal law,’ the DoJ cannot ‘be in a position where we give someone a pass because they’re saying ‘Well, now we’ve grown to be too big to fail.'” Is that a threat to Tether, Binance… ? Read it.

more tips:

Also in the FT – SEC Commissioner Hester Peirce (R) warns that US could fall behind Europe without crypto rules. Read what she means.

Pham calls for expertise

Commodity Futures Trading Commission (CFTC) Commissioner Caroline Pham is seeking comment for her Global Markets Advisory Committee’s work program (GMAC) – an outcome of its meeting in mid-February.

GMAC, a group comprised of subject-matter experts includes several subcommittees focused on Digital Asset Markets, Global Market Structure and Technical Issues, respectively.  For Digital Assets, the work proposal asks for “recommendations for industry standards and best practices for tokenized asset markets including (i) digital assets taxonomy, (ii) pre-trade, execution, and post-trade requirements, and (iii) governance, risk, and control frameworks.” And there’s more work to be done around NFTs (non-fungible tokens) and tokenization, too.

Deadline for input on the work proposal is May 30. In the press release, Pham also says she will roll-out the red carpet on subcommittee appointments before the next GMAC meeting in July. Read the release.

Waters’ new stablecoin bill

House Financial Services Ranking Member Rep. Maxine Waters (D, CA) is prepping her caucus for Thursday’s Digital Assets Subcommittee hearing on stablecoins with a new Democratic version of the stablecoin bill, reports Politico. “The 74-page text makes ‘a few critical updates’ to a bipartisan draft that circulated in September ‘in response to three key requests for edits raised by Members, the Treasury, the Federal Reserve and outside stakeholders,'” writes Politico’s Eleanor Mueller.

The new bill’s contents and how it fits with the Congressional Republican majority’s version remains to be seen.

Is this a sincere attempt at effective legislation or political positioning? One possible angle: Democrats may want to be able to say, “We tried, but the Republicans blocked us” – especially if their current anti-crypto positioning is softened in the months ahead in order to embrace a less negative view held by the moderates and/or center of the electorate in anticipation of the 2024 general election.

Also of note is whether any House digital assets legislation matters in the current Congress given the politics of the Democratic majority in the Senate and the influence of key Democrats such as Senate Banking Chair Sherrod Brown (D, OH) and Senator Elizabeth Warren (D, MA).

Nevertheless, and “drinking from the glass half-full,” the work and critical thinking in today’s legislative process is education for tomorrow as technology and government intertwine.

Vice President Bitcoin

“Bitcoin-loving” Miami Mayor Francis Suarez (R) has been floated as a vice presidential candidate by former Trump advisor Kellyanne Conway according to Politico. “Francis Suarez can be POTUS one day. It is up to the voters when that day is,” Conway told Politico. Read a bit more.


Algorithmic stablecoin disaster TerraUSD, which collapsed last May, may have been improperly manipulated according to SEC court filings reviewed by the Wall Street Journal. “U.S. high-speed trading giant Jump Trading entered a secret deal to prop up the TerraUSD cryptocurrency a year before the coin’s collapse, new court filings show, highlighting the ties between Chicago-based Jump and disgraced crypto mogul Do Kwon,” reports the WSJ. Read more.

number go down

Investor Paul Tudor Jones sees headwinds for Bitcoin and “number go up” in an interview on CNBC yesterday. “Bitcoin has a real problem because in the United States, you have the entire regulatory apparatus against it.” Tudor also said that the expectation for decreasing inflation in the United States also meant that “crypto as a hedge” was no longer as relevant and therefore could hurt Bitcoin’s value. See the interview on CNBC’s Squawk Box.

still more tips

North Korean crypto thefts target Japan, Vietnam, Hong Kong – Nikkei

U.S. crypto firms set sail to Bermuda amid dark and stormy US regulatory environment – The Block

Crypto companies are playing poker with the SEC as agency cracks down on the industry – CNBC

BlockFi Moves to Liquidate Its Crypto Lending Platform – The Wall Street Journal

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