blockchain tipsheet

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regulator rift – state

The jockeying for position among regulators in crypto isn’t just between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) – it’s happening at the state level, too.

So says a comprehensive new article in Fortune by Leo Schwartz which looks at the growing brouhaha in New York State: The Office of the Attorney General and A.G. Letitia James (D) versus the New York Department of Financial Services (NYDFS) and its Superintendent Adrienne Harris (D), who supervises the pre-eminent state crypto regulation – the New York BitLicense. Read the article.

You could see this battle coming in the press release last week for the A.G.’s new crypto bill (a.k.a CRPTO). Nowhere was the NYDFS –  a seemingly key partner for the Attorney General –  mentioned as a willing participant in the new legislation. Only a former NYDFS Superintendent under former Governor Andrew Cuomo provided a glowing quote among the two dozen Democrats and organizations who backed introduction of the legislation in the release.

One Congressional Democrat is taking note. Rep. Ritchie Torres (D, NY), a member of the Congressional Blockchain Caucus in the last Congress, tells Fortune about his fears of a growing turf war in his state and its impact on effective regulation: “DFS is the most effective and exacting regulator of crypto not only in the country, but in the world. (…) As the old saying goes, why fix what ain’t broken?”

Will U.S. Senator Kirsten Gillibrand (D, NY), an ally of New York Governor Kathy Hochul (D), potentially weigh-in next?

regulator rift – national

The “anti-crypto” plan implemented by Democratic party leadership, which it apparently sees as winning strategy for the 2024 general election, could be seeping into New York State with A.G. James (who almost ran against Governor Hochul in 2022, but then pulled back) getting an opportunity to burnish her Democratic credentials.

In the meantime, NYDFS Superintendent Adrienne Harris (a Democrat, Hochul appointee and former Obama-era appointee to the U.S. Treasury) may be left in the lurch. Continue reading “Democrats Battling Over Crypto In New York State; On Bitcoin 2023 In Miami”

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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.

See the letter (PDF). And, read the HFS press release.

“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?

Presidential tweet

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. Continue reading “Debt Ceiling Colliding With Digital Assets?; NYSE Joins Dual Committee Hearing”

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Coinbase saber-rattling

Cryptocurrency platform Coinbase CEO Brian Armstrong took part in the Dubai Fintech Summit yesterday and provided some back-handed criticism for U.S. regulators on social media tweeting, “The [United Arab Emirates (UAE)] deserves a lot of credit for being forward thinking on crypto. First dedicated crypto regulator in the world, a clear rule book published (!), business friendly plus strong customer protections. Really enjoying my visit so far.” On stage, Armstrong was quoted as saying that his company is considering making Dubai an “international hub.”

Armstrong continues to poke Congress and regulators with the veiled threat that if they don’t do something about crypto regulation in the United States, he will take (most of) Coinbase’s business elsewhere. In an interview with CNBC in Dubai, Armstrong said, “Coinbase is not going to relocate overseas… We’re always going to have a U.S. presence … But the U.S. is a little bit behind right now.” Still, it was just last week that the company announced a new international derivatives exchange in Bermuda.

The UAE trip by Armstrong and the Coinbase executive team was announced in a Coinbase blog post on Sunday that said, “[It] is no secret that Coinbase is also working with Abu Dhabi Global Market (ADGM) regulators to further expand the licensing and availability for Coinbase International Exchange. We have also been engaging with Dubai’s Virtual Assets Regulatory Authority (VARA)… Continue reading “Coinbase Continues Saber-Rattling; New House Resolution On Digital Assets”

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New York – legislation

New York State Attorney General Letitia James (D) announced new legislation called “Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act” on Friday. AG James said in the release, “Rampant fraud and dysfunction have become the hallmarks of cryptocurrency and it is time to bring law and order to the multi-billion-dollar industry.”

Three overall goals for the legislation are listed including “1) Stop Conflicts of Interest 2) Require Public Reporting of Financial Statements and 3) Bolster Investor Protections.” And there’s this: “The bill would also strengthen the New York State Department of Financial Services’ (NYDFS) regulatory authority of digital assets.” Next steps for the bill will include submission by the Office of the Attorney General “to the State Senate and Assembly for their consideration during the 2023 legislative session” which currently runs through June 8.

An impressive list of 25 different, supportive quotes from state Democratic politicians and special interests are included in the announcement and none more prominently than former NYDFS Superintendent, Maria Vullo. Vullo served as superintendent of the NYDFS from 2016 to 2019 and briefly ran for the Attorney General position in 2021 while James considered running for New York State governor. Vullo talks in the release about the need to “codify” the New York BitLicense – New York State’s digital assets framework.

Policy professional Justin Slaughter of Paradigm looks through the entire bill and delivers a comprehensive tweet thread here. He notes, “How the new legislation interacts with the BitLicense regime isn’t clear – the legislation doesn’t appear to mention it. Presumably this bill won’t pass without some discussion of how this either complements or replaces the BitLicense though.”

more tips:

The Bill: Legislative Bill Drafting Commission 10985-04-3 (PDF) – ag.ny.gov Continue reading “New York Attorney General Legislating On Crypto With CRPTO; Market Structure Hearing Wednesday”

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distributed ledger thumbs up

The Biden Administration released a new “national standards strategy” which could be construed positively for distributed ledger technology and digital assets yesterday. The broad framework aspires to bolster “U.S. engagement in standards for critical and emerging technology (CET) spaces will strengthen U.S. economic and national security.”

The Fact Sheet for the CET report explains the strategy’s four pillars: Investment, Participation, Workforce, Integrity/Inclusivity. And, the CET report lists all the areas where standards are needed (see pages 6 and 7) including: “Digital Identity Infrastructure and Distributed Ledger Technologies, which increasingly affect a range of key economic sectors.”

This is the most hopeful statement about blockchain tech since the President’s digital assets Executive Order in March 2022. But, it doesn’t signal the end of the anti-crypto army.

more tips:

FACT SHEET: Biden-⁠Harris Administration Announces National Standards Strategy for Critical and Emerging Technology – WhiteHouse.gov

United States Government National Standards Strategy For Critical And Emerging Technology (PDF) – WhiteHouse.gov

Coinbase still pulsing

Cryptocurrency platform company Coinbase reported its Q1 2023 earnings yesterday and beat estimates.

According to Marketwatch, “The company reported a first-quarter net loss of $78.9 million, or 34 cents a share, compared with $429.7 million, or $1.98 a share, in the same quarter last year. Revenue fell to $772.5 million, compared with $1.17 billion in the prior-year quarter. Trading volumes came in at $145 billion. Analysts polled by FactSet expected Coinbase (COIN) to report a per-share loss of $1.45, on revenue of $655 million. They expected trading volume of $147.7 billion.” Read more. Continue reading “Distributed Ledger Gets Boost By White House; Coinbase Reports Q1 Ahead Of Estimates”

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consolidating the lobby

Industry trade organization Blockchain Association (BA) is consolidating its New York offices into its Washington base. BA’s CEO Kristin Smith said in a statement provided to CoinDesk, “Blockchain Association is shifting resources out of New York State to focus on federal policy – and we continue to hire and build out our full-time staff in Washington. Our mission remains the same: to advance the future of crypto in the United States.” Read more.

crypto out, CBDCs in

In a new research report titled “Crypto is Out, CBDCs are In,” Morgan Stanley analyst Sheena Shah sees Central Bank Digital Currencies (CBDCs) coming on fast particularly due to new momentum in the European Union.

She writes, “We expect more digital (tokenised) government bonds and equities to be launched in the Eurozone in coming years, which could be settled using the CBDC. Depending on the type of CBDC introduced, they have the potential to have major implications for the current banking and payments system. We also expect more regulated euro stablecoins to be issued as MiCA (crypto regulation) provides a framework for their issuance.”

Another snippet from the report distills feedback from payment companies and the limited demand they’re seeing from merchants who are looking to accept crypto: “Fiat-crypto on- and off-ramps are also being limited by US banks, and the regulators’ current approach to perceived risk in this market suggests it is going to get even more difficult. Worldpay estimates that crypto payments amounted to ~0.2% of global e-commerce transaction value in 2022 ($11.6bn). We continue to see barriers to crypto payment acceptance due to: 1) regulatory and tax treatment uncertainty; 2) complexity; 3) lack of payment chargeback/dispute processes; 4) price volatility and 5) transaction costs. Merchants that do accept crypto favour existing payment processors, avoiding direct integrations with the crypto ecosystem. It is notable that Adyen, one of the largest e-commerce acquirers, has indicated that it doesn’t plan to accept crypto partly due to low merchant demand, while Worldline has introduced a crypto service but only for Swiss merchants initially.” Continue reading “Consolidating The Lobby; Crypto Out, CBDCs In Says Morgan Stanley”

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now leaving the country

Is this the next step to leaving the United States? Cryptocurrency platform Coinbase continues full-steam ahead with its global product plans as the company announced Coinbase International Exchange. Read the details on the Coinbase blog.

The company says the newly-announced futures product is already in motion, “Coinbase International Exchange listed BTC and ETH perpetual futures contracts earlier today. All trading is settled in USDC; no fiat on-ramps required. The contracts initially offer up to 5x leverage. Direct access trading via API is available to institutional clients in eligible, non-US jurisdictions.

The company will be using Bermuda and its regulatory framework to facilitate international trading (no U.S.) as The Block notes that Coinbase and fellow competitor Gemini (see their news yesterday) are busy filling the international void left by FTX implosion in the perpetual futures space. Read more.

Coinbase just received a license in Bermuda two weeks ago.

more tips:

One effect of the news – and not lost on Coinbase – is the pressure a non-U.S. launch puts on U.S. regulators and Congress as innovative U.S. companies move abroad amid regulatory dysfunction. Expect more Coinbase openings internationally.

DAME it

The Biden Administration is proposing an exorbitant, new tax to reign in crypto mining according to a new blog post yesterday from the White House’s Council of Economic Advisors. Titled “The DAME Tax: Making Cryptominers Pay for Costs They Impose on Others,” the Council post explains that the Digital Asset Mining Energy (DAME) excise tax would impose on miners “a tax equal to 30 percent of the cost of the electricity they use in cryptomining” and would raise $3.5 billion in new revenue over 10 years. Read the post. Continue reading “Coinbase Quickly Launches International Exchange; Biden Administration Pushing Crypto Tax”