ETFs Make Regulation More Important Than Ever Says CFTC Chair; Brown AML Bill Updates

Regulation

CFTC: ETFs aren’t regulations

It may not have been under his commodities oversight purview, but Commodity Futures Trading Commission Chair Rostin Behnam (D) is concerned that the recent approval of Bitcoin spot market Exchange-Traded Funds (or Products) is unlocking unnecessary risk for market participants.

At an American Bar Association meeting on Friday, Behnam said in a speech (read it) : “I fear that the regulatory approval of bitcoin ETPs introduces risk that, in spite of yellow flags, market participants, retail and institutional alike, may mistake the technical approval of a product—with actual regulatory oversight of the cash commodity digital assets. The concerns I have publicly voiced for the better part of six years regarding the digital asset commodity spot market have only become magnified. The need for federal legislation over cash market digital assets has never been more critical, and I will continue my call for action.”

more tips:

BlackRock’s Bitcoin ETF First to Reach $2B in AUM – CoinDesk

what you should know: In Behnam’s mind, you can’t approve a product before you approve the regulation around the product. Meanwhile, Democratic leadership led by Securities and Exchanger Commission (SEC) Chair Gary Gensler is saying that the regulation exists already for digital assets – securities law – and all crypto tokens are securities. Behnam has clearly broken from the current Dem leadership point-of-view exhibited by his past support of DCCPA and his stated belief that some tokens are commodities including stablecoins.

blockchain’s big use case: AI

The public form is now available for the requests for comment on the use of AI (artificial intelligence) in CFTC-regulated markets. All comments are due by April 24 here. Continue reading “ETFs Make Regulation More Important Than Ever Says CFTC Chair; Brown AML Bill Updates”

McHenry Speaks: Digital Assets Delayed; Ethereum ETFs Delayed By SEC

Digital Assets Delayed

digital assets delayed

House Financial Services Chair Patrick McHenry (R, NC) appeared on CNBC’s Squawk Box yesterday morning and expressed frustration with his caucus as well as a defiant hope that it was still possible to move legislation this year in spite of Congressional gridlock. Digital legislation is delayed in 2024, most assuredly.

From the interview:

Chair McHenry: “Look when the House basically attempted to commit political suicide – Republicans in the House tried to commit political suicide in the fall – it gummed up three or four months of House Floor action. So, I’ve got major policies in capital formation, data privacy and crypto that we haven’t moved across the House floor. And I intend to get those moves across the House Floor this year. We can still do big deals -we can still do big deals, even amidst the longest presidential campaign, general election campaign, in American history. We can still get these things done and build consensus and I think there’s a need for market structure on crypto…”

Joe Kernen, CNBC: “The recent ETF and watching the SEC Chair sort of…. kicking and screaming, really …. after, you know, the court said one thing… ‘That’s no way to run a railroad, is it?'”

Chair McHenry: “It’s ineptitude and [the SEC] went kicking and screaming after the courts demanded they take this action. Now, you have more legitimate money coming in, flowing into crypto, some structure being provided to a new asset class that has its problems and needs some clarity – and under federal law – to remedy it.” Continue reading “McHenry Speaks: Digital Assets Delayed; Ethereum ETFs Delayed By SEC”

Blockchain Companies Visit Their Senator; North Korea Still Hacking Crypto

constituents calling

staff hears constituents

In Fortune, reporter Leo Schwartz takes a look at how Massachusetts blockchain companies are not hesitating to try and meet with Senator Elizabeth Warren’s (D, MA) office in the interest of educating the Senator and her staff on blockchain technology from a constituent’s perspective.

See a tweet from their visit to the Capitol last week.

Waev Data founder Phil McMannis, whose company is based in Boston, said that he reached out to the Senator’s office and was able to book a meeting with Gabrielle Elul, a Warren staffer who serves as an economic policy advisor. Schwartz reports, “McMannis, along with the representatives from other crypto companies and a Coinbase [Stand With Crypto] lobbyist, laid out their concerns about Warren’s proposed bill to Elul, along with elucidating what they view as the non-financial use cases of crypto, such as health data privacy and creator financial empowerment.” Read more.

multiple AML bills

Chair Sherrod Brown (D, OH), continues to bang the drum from his pulpit in Senate Banking on the use of crypto in illicit financing for terrorism and fentanyl – to name just a couple – and now he’s working on a digital assets anti-money-laundering bill of his own. And that’s not all as Politico reported on Wednesday, “‘Sanctions-related proposals are also on the table,’ [Chair Brown] said, though he underscored that ‘it’s not been decided yet.’ Sen. Jack Reed (D, RI) said in October that Brown was looking at combining relevant bills from Reed and Sen. Elizabeth Warren (D, MA), among others, in the wake of the Hamas attacks on Israel.” Read more. Continue reading “Blockchain Companies Visit Their Senator; North Korea Still Hacking Crypto”

FINRA Updates Its Guidance On Crypto Communications; SEC Finds More Fraud

Crypto Comms

SRO on crypto comms

FINRA, the self-regulatory body for securities within the financial industry – and reports into the Securities and Exchange Commission (SEC) – updated its past (November 2022) crypto guidance to members saying this week, “This update does not create new legal or regulatory requirements or new interpretations of existing requirements, nor does it relieve firms of any existing obligations under federal securities laws and regulations. Rather, this update poses questions for firms to consider as they review and supervise their retail communications concerning Crypto Assets.”

The industry body lists off a bulleted list of issues it sees with recent, crypto asset, member communications such as: “Unclear and misleading explanations of how Crypto Assets work and their core features and risks.” FINRA wants its members to do better and, no doubt, is being “encouraged” to do so the SEC. This week’s “update” provides a list of questions for FINRA members to consider before it starts its next crypto asset communications campaign.

Read the guidance.

Pokemon cards are securities

Yesterday, Politico analyzed the recent court news in the Coinbase and Binance complaints brought by the SEC. A partner at the law firm representing Coinbase – William Savitt at Wachtell Lipton – makes the case for overreach by the regulator saying, “The SEC’s regulatory reach does not go beyond securities… And if it’s permitted to regulate here, it’s permitted to regulate everywhere.” – “everywhere” as in your Pokemon cards says Savitt. Read more. Continue reading “FINRA Updates Its Guidance On Crypto Communications; SEC Finds More Fraud”

Treasury Sanctions Terrorists, Sees Crypto Involvement; Judiciary Gets Hagerty AML Legislation

Treasury sanctions

more sanctions, crypto involved

The U.S. Treasury’s Office of Foreign Assets Control (OFAC) has imposed a new fifth round of sanctions against members of the terrorist organization Hamas coming out of the October 7 terror attacks in Israel.

Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence, said in a release, “Hamas has sought to leverage a variety of financial transfer mechanisms, including the exploitation of cryptocurrency, to channel funds to support the group’s terrorist activities.”

The latest action isn’t specific about the dollar levels involved in the terrorist financing identified and how much of it was cryptocurrency. Regarding one of the implicated terrorist financial networks: “Hamas has directly co-opted and utilized some corrupt money exchanges in both the West Bank and Gaza to launder funds for the terrorist group. Since at least 2020, Hamas has also used cryptocurrency to transfer some funding in support of operational costs in the West Bank as a means of mitigating the risks of physically moving cash, circumventing border crossings, and evading monitoring by authorities.”

Read the press release: “U.S., UK, and Australia Target Additional Hamas Financial Networks and Facilitators of Virtual Currency Transfers” – treasury.gov Continue reading “Treasury Sanctions Terrorists, Sees Crypto Involvement; Judiciary Gets Hagerty AML Legislation”

CBDCs Ascend The Presidential Platform; Illicit Finance Bill From Senators Hagerty, Lummis

CBDCs

the presidential platform

Last week, former President Donald Trump made digital assets part of his 2024 presidential campaign platform in no uncertain terms.

According to The Hill, Trump told a campaign crowd in New Hampshire, “Tonight, I am also making another promise to protect Americans from government tyranny. As your president, I will never allow the creation of a central bank digital currency.Read more in The Hill.

what you should know: By vowing to block creation of a Central Bank Digital Currency (CBDC), the President Trump takes up the cause of the myriad pieces of anti-CBDC legislation introduced by Republicans – and some Democrats – in Congress.

Trump’s comment may have also put new momentum behind a House Floor vote for bills such as House Majority Whip Tom Emmer’s (R, MN) CBDC Anti-Surveillance State Act [H.R. 5403] which passed out of a House Financial Services markup in July. Whip Emmer tweeted on Friday, “I agree with President Trump; CBDCs pose a serious threat to Americans’ right to financial privacy.”

Trump’s CBDC comment may be fortuitous for House Republicans who increasingly need some wins while their Caucus struggles to fund the government.

election fundraising

Former President Donald Trump has not been shy about using NFTs (non-fungible tokens) for fundraising. CoinDesk reported that nearly $7 million had been amassed in crypto and NFT licensing fees as of last August.

In fact, over the weekend, three Trump NFT collections tracked by NFTPriceFloor showed a combined market capitalization of approximately 22,000 Ether or $54 million.

Good news for his NFT holders, he’s launching a Bitcoin ordinal NFT, too, which costs a mere $9,900. Read about it in CoinDesk. Continue reading “CBDCs Ascend The Presidential Platform; Illicit Finance Bill From Senators Hagerty, Lummis”

Interview: Rep. Wiley Nickel Sees ‘Big Impact’ Ahead With Digital Assets

Rep. Wiley Nickel

With his first year in Congress complete and his last year ahead (he’s running for Senate in 2026), Rep. Wiley Nickel (D, NC) has been a consistent supporter of potentially transformative bills from the House Financial Services (HFS) Committee, which he joined at the beginning of the 118th Congress.

The digital asset market structure bill known as “Financial Innovation and Technology for the 21st Century Act” [H.R. 4763], included early support from Rep. Nickel where he eventually voted with five Democrats and all of the Committee’s Republicans to support the bill during a July HFS markup.

In another July HFS markup, Rep. Nickel was one of 5 Democrats – along with  the majority Republicans – who supported a long-awaited stablecoin bill, “Clarity for Payment Stablecoins Act of 2023” [H.R. 4766]. Both bills now move to the House Floor for a vote.

Rep. Nickel spoke with blockchain tipsheet in Washington D.C. this week to discuss Congress and digital assets including:

    • Learnings during his first year
    • The Bitcoin ETFs and regulators
    • Partisanship and the Democratic Party
    • Anti-Money Laundering
    • His constituency and digital assets
    • Stablecoin and market structure bills
    • The importance of Congressional staff
    • 2026 Senate run, his platform and digital assets

The interview has been lightly edited for clarity.

blockchain tipsheet: What’s surprised you the most in your first year of Congress?

Rep. Wiley Nickel: It’s been a great first year in Congress. The surprise for me has just been how much I like the people I serve with – the absolutely amazing people that you don’t really hear about. They’re not the people on the far left or the far right. They are people who care about their country, they are working hard – in my experience – behind the scenes and it’s very different from what the public sees. I think there are a lot of people that that are very serious about trying to work together. And I think the Financial Services Committee is one of the few committees that’s really going to move some good bipartisan bills through the House and signed into law. Continue reading “Interview: Rep. Wiley Nickel Sees ‘Big Impact’ Ahead With Digital Assets”

Coinbase Motion-To-Dismiss Hearing Buffets SEC Counsel; Banking Chair Brown Sees AML Legislation Soon-ish

SEC struggles

motion-to-dismiss day

“Did Coinbase just win?”

We won’t know for (possibly) weeks, but given the tone of the hearing in Judge Katherine Failla‘s chambers, the SEC had weak arguments and Coinbase was nimble and prepared at yesterday’s Motion-To-Dismiss (MTD) hearing in the Coinbase complaint brought by the Securities and Exchange Commission (SEC) in June.

Court observer Kevin Paffrath of ehack.com covered the nearly 5-hour hearing and thinks there’s a 90% chance that Coinbase has won its MTD – he started the day thinking the exact opposite given that MTDs are often unsuccessful. See Paffrath’s written summary.

Even better, hear his audio-only broadcast of the hearing with commentary.

Available by teleconference, it should be noted how informative the hearing’s public discussion on digital assets was – particularly on The Howey Test, the Holy Grail of securities regulation.

Helpful amicus briefs submitted to the Court in support of Coinbase were brought up throughout the hearing, too. DeFi Education Fund’s brief (PDF) was highlighted by the Judge for its definitional value around wallets and staking, for example.

In that vein, at 1:36:10 of the ehack.com broadcast, Judge Failla, who was appointed by President Barack Obama in 2013, recalls how she had a discussion with Senator Chuck Schumer (D, NY) during her confirmation for the bench that stressed the importance of NOT being an activist judge.  Pointing to the amicus brief submitted by Senator Cynthia Lummis (R, WY) in support of Coinbase – see it (PDF) – Judge Failla appeared to feel a “moment of truth” around proving she wasn’t an activist and should “stay in her lane.” Yet, the Judge told the courtroom she could feel Lummis saying, “Don’t do this Failla” and expressed a measure of deference to the Senator.

Reviewing the hearing, crypto counsel James Murphy (a.k.a. MetaLawMan on X) was less sanguine post-hearing on Coinbase’s MTD succeeding. He said, “My guess (and it’s just a guess) is she is going to allow the case to go forward to discovery, like the Ripple case. But, I continue to believe, as noted in my pinned tweet, that Coinbase will ultimately win the case in the end. Congress, of course, could put a stop to the whole thing with adoption of comprehensive crypto legislation but that won’t happen this year.” Read his thoughts.

what you should know: Now, we wait for the Judge’s decision. FWIW, Judge Failla dismissed a case in August against Uniswap by a mysterious collection of six individual investors. Around the same time in a separate DC court, Grayscale won its case against the SEC that got the Bitcoin spot market ETF ball rolling.

Overall, a loss in this case by the SEC would be huge for digital assets and though it could appeal, and appeal, the courts will have spoken on the SEC’s generalized claim that all crypto are securities, let alone other areas of dispute. And the spotlight would be even brighter on Congress to produce a regulatory framework. Continue reading “Coinbase Motion-To-Dismiss Hearing Buffets SEC Counsel; Banking Chair Brown Sees AML Legislation Soon-ish”