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White House throws 3-pitch crypto strikeout
STRIKE 1 – On Friday, with a tip of the cap to President Biden’s digital assets Executive Order last March, the White House released, “The Administration’s Roadmap to Mitigate Cryptocurrencies’ Risks.” The emphasis of the report is entirely on “risks.” Also – note the use of “cryptocurrencies’ risks” rather than “digital assets risks” in the title. Is the White House cutting to the chase on what it thinks about the broader context of digital assets and blockchain technology? Co-author and White House National Economic Council Director Brian Deese warned Congress later in the day, “We’re ready to work w/ Congress to address regulatory gaps, but it would be a grave mistake to reverse course and deepen ties btw crypto and the financial system.”
STRIKE 2 – At the same time, the Federal Reserve Board (FRB) announced that it was not letting digital assets bank and Wyoming-based Custodia Bank become a member of the Federal Reserve System. “The firm’s novel business model and proposed focus on crypto-assets presented significant safety and soundness risks…” – no crypto allowed in the U.S. banking system in other words. Expressing “surprise and disappoointment,” Custodia Bank’s founder and CEO Caitlin Long said Custodia’s master account application at the Federal Reserve Board of Kansas City is still pending. Perhaps -but it’s also mired in the courts. This is the front lines of TradFi vs DeFi.
STRIKE 3 – Finally, at the same time as its Custodia bank announcement, The FRB issued a 14-page policy statement warning banks about their involvement in crypto on the grounds of “safety and soundness.” According to a separate press release, “The Board has not identified any authority permitting national banks to hold most crypto-assets, including bitcoin and ether, as principal in any amount, and there is no federal statute or rule expressly permitting state banks to hold crypto-assets as principal. Therefore, the Board would presumptively prohibit state member banks from engaging in such activity under section 9(13) of the Act.” In a four-page memo to its Board of Governors, The Fed boils the policy down including the intent to rein in state banks interested in crypto… like those in Wyoming?
will pro-crypto Dems desert?
With a Democratic White House appearing to fight against efforts to advance digital assets legislation, where does Friday’s “3-pitch strikeout” leave pro-crypto Democrats especially as the next Presidential election approaches in 2024? Some Democratic political strategists around the President may believe crypto and digital assets as something to use against Republicans in ’24.
Hot seats on the crypto issue would appear to include: Sen. Kirsten Gillibrand (D, NY), a co-sponsor of the Responsible Financial Innovation Act; Senate Ag Chairwoman Sen. Debbie Stabenow (D, MI), who helped develop the ill-fated Digital Commodity Consumer Protection Act (DCCPA) and has already announced she will not seek re-election; and Sen. Cory Booker (D, NJ) who co-sponsors DCCPA.
The same political pressure drama applies in the House among pro-crypto Democrats and Blockchain Caucus members Bill Foster (D, IL), Darren Soto (D, FL), Ritchie Torres (D, NY) or Jake Auchincloss (D, MA) to name a few.
A bellwether to watch may be Ranking Member on House Financial Services (HFS) Maxine Waters (D, CA) who appeared to take interest in crypto as HFS Chair in the last Congress. She could turn more combative on crypto given White House guidance as new HFS Chair Patrick McHenry (R, NC) pushes an agenda featuring digital assets legislation.
The bi-partisan crypto coalition on Capitol Hill appears threatened more than ever. Consumer protections are on one side (led by the Administration) versus a side promoting the combination of consumer protections and innovation – the latter, a harder tightrope to walk as a novel technology and its use cases still emerge.
The White House Office of Science and Technology Policy said last week that it’s looking for help with research and development on a “National Digital Assets R&D Agenda.” The office’s Twitter account asks, “How can R&D help mitigate risks from digital assets like crypto? What R&D could support a potential U.S. central bank digital currency?” Read more on the Federal Register. The R&D efforts also received a link from the Biden Administration’s “Roadmap” blog post on Friday which said R&D “will help the technologies powering cryptocurrencies protect consumers by default.” Government appears to be getting into the technology innovation game.
A selection of recent Committee appointments for the 118th Congress.
- House Agriculture Committee Appointments – Republicans – updated Jan. 16
- House Agriculture Committee Appointments – Democrats – Jan. 27
- House Financial Services Committee Appointments – All
- House Financial Services Subcommittee Appointments – Republicans – Jan. 26
- House Financial Services Majority Staff – Jan. 27
calling in the army
A Twitter Spaces event last week with Securities and Exchange Commission (SEC) Chair Gary Gensler, fellow Commissioner Caroline Crenshaw and someone from the U.S. Army continued to drive home crypto bullet points from the Chair. Read more on Decrypt. It’s notable that Commissioner Crenshaw speaks as she has had arguably less of a public profile on crypto than any of the other four commissioners.
A 3-minute clip later re-tweeted by the Chair titled “Financial Readiness in 2023” features Gensler who says, “Most of these 10 or 15,000 tokens will fail. That’s because venture capital fails, new startups fail, but also because history tells us that there’s not much room for micro-currencies and … meaning … we have the U.S. Dollar and Europe has the Euro and the like. So, don’t get caught up in the FOMO.” Hear it. This comes on the heels of SEC actions last week against FTX executives and a Mango Markets trader who is alleged to have manipulated crypto markets.
Senate caucus returns
The Senate’s Financial Innovation Caucus tweeted publicly for the first time since September as the closest thing to a crypto caucus in the Senate came back to life. Fintech company DTCC and members of the Digital Dollar project, which includes former CFTC chair Chris Giancarlo, presented last week at a luncheon said the tweet. The Caucus still lists the same Senators including Cynthia Lummis (R, AZ) and Kyrsten Sinema (I, AZ) as the last Congress as caucus and committee assignments are still swirling at the beginning of the 118th Congress.
In spite of crypto winter winds, industry advocates swarmed the Hill last week. Chamber of Digital Commerce met with members of the House Financial Services Committee. Bitcoin advocate Dennis Porter of the Satoshi Action Fund shared his “Benefits of Bitcoin Mining” presentation in the Senate Finance Committee Room. Blockchain Association’s Jake Chervinsky offered up a “State of Crypto Policy” for the organization’s recurring crypto breakfast. Meanwhile, his BA colleague, Ron Hammond says in a thread, “From talks with Members and staff, Congress plans to get back into crypto hearings shortly. Get ready.”
Just as FTX was blowing up in early November 2022, beltway publication Politco was preparing for its inaugural Crypto Summit on December 1 sponsored by Binance. It wasn’t to be and was abruptly cancelled on November 21. On Friday, Politico rolled out its 2023 events schedule – see them – with no crypto to be found as of yet. Have crypto company marketing budgets disappeared for DC events or are crypto and digital assets radioactive in DC and/or DC media? It’s only January, but it may be a sign of the post-FTX times.
you want more
- Ritchie Torres went from crypto ‘newbie’ to key ally in Washington. Now he could shape the industry’s post-FTX future (subscription) – Fortune
- Sen. Ted Cruz Wants Capitol Hill Vending Machines to Accept Crypto – CoinDesk
- EU Lawmakers Vote To Impose Strict Capital Requirements On Banks Holding Bitcoin And Crypto – Bitcoin Magazine
- CFTC’s Johnson urges Congress to expand commission’s crypto oversight powers – Cointelegraph
- Silvergate Shares Slide After Crypto Bank Suspends Dividend Payment – The Wall Street Journal
- Opinion: Congress should reinvigorate the CFTC so it can regulate shadowy financial markets – Marketwatch