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mainstream Choke Point

A New York Magazine article yesterday takes “Choke Point 2.0” mainstream and re-hashes evidence suggesting the Biden Administration and government regulators may be trying to suppress crypto.

New York Mag’s Jen Wieczner isn’t totally convinced, “Whether one buys the crypto industry line of a stealth war, or the official administration line of various regulators just doing their jobs, there are objectively several fronts where the sector is facing much more intense scrutiny.” Still, Wieczner spends a lot of time reconstructing the finer points of the Choke Point 2.0 argument. I mean A LOT of time.

It was only back in February that New York Magazine ran a piece titled, “Can Gary Gensler Survive Crypto Winter?” which was arguably supportive of the Securities and Exchange Commission (SEC) Chair’s position and which some saw as a way for Gensler to reach out NY Mag’s strong, Democratic party base.

UK crypto consult comment

In a letter sent to the UK Treasury on April 29 by venture capital firm a16z as part of the government’s request for comment,  the firm asks that a “more nuanced” regulatory approach occur with cryptocurrency.  Miles Jennings, General Counsel at a16z, tweeted yesterday, “This weekend, we filed a letter applauding 👏 the UK’s efforts to provide regulatory clarity and enhance consumer protections in web3.”

Brian Quintenz, the venture firm’s head of policy, added a thread of his own on Twitter that condemned the SEC’s way of doing business and said in part, “The UK’s suggested approach looks to ensure similar regulatory outcomes for crypto and doesn’t assume that superficially related activities automatically create the same legacy financial risks and require the exact same regulatory rules.” Read more on The Block.

more tips:

HMT crypto consultation response (PDF) – a16zcrypto Continue reading “Choke Point 2.0 Theme Hits Mainstream Media; UK Crypto Consult Comment”

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Consensus – no Democrats

Democratic politicians were nowhere to be seen on CoinDesk’s Consensus stages last week as 15,000 attendees gathered in Austin according to organizers – arguably the world’s largest conference devoted to cryptocurrency.

The effects of FTX’s implosion and Sam Bankman-Fried’s malfeasance continue to ripple through the Democratic caucus.

Nevertheless, on Friday, Republicans attended as House Financial Services Chair Rep. Patrick McHenry (R, NC) joined (via Zoom) Senator Cynthia Lummis (R, WY) in a digital assets discussion at the conference. They both invoked the name of Senator Kirsten Gillibrand (D, NY) several times as the necessity of bipartisanship looms in a divided Congress.

Gillibrand’s co-sponsorship of the Responsible Financial Innovation Act (RFIA) – still not introduced in the 118th Congress – is something pro-crypto Republicans continue to hang their bipartisan “hat” on in the wake of FTX. Gillibrand reiterated her support of the legislation in an appearance at a Milken Institute conference in early March. But, a re-introduction of RFIA expected in mid-April has yet to materialize.

Consensus – legislation prospects

On stage, McHenry took the bait in answer to a question about whether there will be digital assets legislation signed by the President in the next 12 months. He answered without hesitation, “Yes.”

And then, he backpedaled a bit:

“Now, the odds of anything happening in Congress are low so it’s always a challenge to legislate something new into existence, and to legislate complicated policy, and to build up members understanding about the trade-offs necessary to make sound policy.” Continue reading “Chair McHenry Sees Signed Digital Assets Legislation; Senator Sinema Introduces Ads Bill”

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Market Structure – House Agriculture

It was a day of cooperation among Republicans yesterday as the House Republican majority convened two simultaneous hearings that began their quest for more and better market structure in digital assets.

Rep. Dusty Johnson (R, SD), Chairman of the House Agriculture’s Subcommittee on Commodity Markets, Digital Assets, and Rural Development, said in his opening statement, “[There]’s plenty of work for our regulatory agencies to do, including the CFTC, the SEC, and our state and federal banking regulators.”

In his statement, House Ag Chair Rep. Glenn “GT” Thompson (R, PA) reiterated his Committee’s partnership with Chair Rep. Patrick McHenry (R, NC) and the House Financial Services (HFS) Committee. See the House Ag Subcommittee hearing video and list of witnesses who participated here.

more tips:

Urgency appears to be the message from Republicans on digital assets, as House Ag and HFS said they will partner again next month on digital assets legislation in a combined hearing according to a release. Read more from Financial Services Committee (Majority).

Market Structure – HFS

Meanwhile, Chair Rep. French Hill (R, AR) guided the market structure hearing on HFS Subcommittee on Digital Assets, Financial Technology and Inclusion. The hearing’s Committee Memorandum read in part, “Committee Republicans seek to establish a digital asset market structure framework appropriate for the unique characteristics of digital assets. This framework would provide digital asset firms with regulatory certainty and prevent the regulatory turbulence created by jurisdictional infighting and punitive enforcement actions.”

See the hearing video and list of five witnesses which included Marta Blecher, President of Filecoin and Hilary Allen, a previous Senate Banking witness and law professor from American University.

Democrats were not interested in the pursuit of market structure if HFS Ranking Member Rep. Maxine Waters’ (D, CA) opening statement was any indication. She pointed to the SEC’s “success” to this point and said, “[We] do not need to create an entirely new and special framework for crypto—we already have one. Rather, crypto firms, like other tech companies before them, must recognize that they are not exceptional; they need to comply with the laws of the land. To the extent there are actual gaps in our laws, such as limitations on the SEC’s reach overseas, we should focus on those, and not on creating more complexity through a whole new regulatory framework.” Read the statement.

more tips:

“SBF’s ‘ghost is still in this room,’ congressman [Rep. Brad Sherman (D, CA)] says at digital asset hearing” – The Block Continue reading “Market Structure Hearings For House Ag and Financial Services; Coinbase’s Ire”

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Choke Point 2.0 – Republicans

It’s official. The “Choke Point 2.0” battle is on.

“Today, we are seeing the resurgence of coordinated action by the federal prudential regulators to suppress innovation in the United States,” read the press release from the Republican-controlled House Financial Services Committee yesterday.

House Financial Services (HFS) Committee Chair Rep. Patrick McHenry (R, NC) has chosen to officially amp up the “Choke Point 2.0” accusation of federal agencies by sending new letters to the heads of the Federal Deposit Insurance Corporation (FDIC), Federal Reserve and Office of the Comptroller of the Currency (OCC).

Read them (PDFs):

Federal Reserve Chair Jay Powell
FDIC Chair Martin Gruenberg
OCC Acting Director Anthony Hsu

 HFS Subcommittee of Oversight and Investigations Chair Rep. Bill Huizenga (R, MI) and Rep. French Hill (R, AR), Chair of the Digital Assets, Financial Technology and Inclusion Subcommittee are co-signers which explicitly accuse the agencies of coordinated action similar to the original Operation Choke Point in 2013.

Republicans ask for a huge amount of data from the three officials – including communications – be delivered by May 9. One can imagine recurring hearings on this topic throughout the 118th Congress driven by Republicans.

Jerome Powell, a Republican, may be thinking, “Why me?”

Choke Point 2.0 – Democrats

Democrats no doubt saw this coming with the Republican majority in the House and probably have a few options here.

Pro-crypto Democrats in the House can just watch, wait and maybe participate. These Dems include Representatives Ritchey Torres (R, NY), Josh Gottheimer (D, NJ) and even freshman Wiley Nickel (D, NC) (who just came aboard as yet-another-co-sponsor of Chair McHenry’s “Keep Innovation in America Act”). Continue reading “Choke Point 2.0 Digital Assets Battle Forms In Congress; Former Libra Executive Sees Crypto Regulation Lacking”

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privacy without anonymity?

Speaking at a London financial services conference, Commissioner Christy Goldsmith Romero of the Commodity Futures Trading Commission (CFTC) advocated for improved identification capabilities in crypto to overcome illicit finance risks reports CoinTelegraph. But, she still sees privacy in the crypto equation and told the audience, “It is possible for all crypto companies to distance themselves from mixers and anonymity-enhanced technology, while still appropriately providing financial privacy for customers.”

How does that work?

Commissioner Goldsmith Romero stated “there is a distinction between financial privacy and anonymity. Traditional finance (TradFi) ensures financial privacy by verifying the customer’s identity through Know Your Customer (KYC), Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) measures, without relying on anonymity-enhancing technology,” according to CoinTelegraph.

This is the nexus of all crypto battles – AML/KYC and integration of traditional finance systems into decentralized systems that do not make the privacy distinction Romero is making. But, privacy is privacy and/or anonymity in a decentralized world enabled by cryptography.  Read more.

more tips:

Will there be compromise? Inevitably if regulated access to the U.S. financial system for digital assets is to be achieved. Today, Congress is mired in politics and the fight for the White House. Crypto or digital assets policy will most likely not progress until a case is made in the interest of national security – which is inherently bipartisan.

Speech: Illicit Finance and Other Key Risks of Digital Assets: Keynote at City Week 2023 – CFTC Commissioner Christy Goldsmith Romero in London – CFTC.gov

Consensus: Lummis, McHenry, Harris

Continue reading “Waters Appoints Gottheimer To Digital Assets; CFTC Commissioner Advocates Privacy Without Anonymity”

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how to manage risk

In an article titled, “Regulators get tough on crypto funds after FTX collapse,” The Financial Times reviews crypto winter including FTX’s implosion and the onslaught of Securities and Exchange Commission (SEC) crypto-related enforcement actions.

The article lands on the possibilities which a crypto ETF could afford, such as Grayscale’s ETF. Ilan Solot, who helps drive the digital assets business at London-based finserv company Marex, tells the FT, “If you’re new to crypto, managing your own private key [to hold currencies directly] may be riskier than having an ETF in your trading account. If someone wants exposure to bitcoin, using an ETF gives them a less efficient product but they’re paying for the convenience of not having to hold their own crypto.” Read more.

John Reed Stark, a former SEC enforcement chief and crypto critic, commented on Twitter, “Big Crypto may not like the rules but just like seatbelt laws, sometimes people need protection from themselves.”

new stablecoin draft

PunchBowl News’ Brendan Pedersen tweeted yesterday afternoon that House Financial Services Committee Republicans have released a new discussion draft of stablecoin legislation for the 118th Congress. Read the tweet. And, see the bill (PDF).

Alexander Grieve of government relations firm Tiger Hill took a look and tweeted, “A lot of similarities to the full cmte draft, but a couple changes: 1) algo ban is nixed, 2) gives greater power to state regulators. (A lot of the extra ‘stuff’ – studies etc – stripped out too).” Read more. Continue reading “Managing The Crypto Risk With ETFs; Draft Of New Stablecoin Bill Released”

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big conference

CoinDesk’s big Consensus 2023 conference is upon us and being held this week in Austin, Texas. The conference’s “Policy Summit” on Friday is devoted to regulation and crypto and includes a discussion with Commodity Futures Trading Commission (CFTC) Commissioner Christy Goldsmith Romero.

See the “Policy Summit” agenda.

Perhaps due to FTX’s implosion and the crypto regulation winter in Washington, the agenda is noticeably slimmer in terms of U.S. government participation when comparing to last year’s agenda which included Senators Cynthia Lummis (R, WY), Kirsten Gillibrand (D, NY), Patrick Toomey (R, PA), Rep. Patrick McHenry (R, NC) and CFTC Chair Rostin Behnam. 

Hear CoinDesk’s Nikhilesh De discuss the Policy Summit highlights including participation by a number of global regulators – go now.

co-sponsoring the fix

If there’s one digital assets-related bill that could – or should – pass, it’s this one.

House Financial Services (HFS) Chair Rep. Patrick McHenry’s (R, NC) “Keep Innovation in America Act,” – which is the latest bill to offer fixes to onerous Internal Revenue Service (IRS) reporting requirements coming out of the 2021 Jobs Act and affected crypto miners and wallet providers – has added Rep. Byron Donalds (R, FL) as a co-sponsor and brings the total number of legislators on the bill to ten along with McHenry:

Rep. Ritchie Torres (D, NY)
Rep. Warren Davidson (R, OH)
Rep. Ro Khanna (D, CA)
Rep. Tom Emmer (R, MN)
Rep. Eric Swalwell (D,CA)
Rep. David Schweikert (R, AZ)
Rep. Darren Soto (D, FL)
Rep. French Hill (R, AR)
Rep. Donalds
Chair McHenry

See: H.R.1414 – Keep Innovation in America Act – congress.gov

As suggested above… if anything is going to pass the House and Senate in terms of digital assets legislation, it would seem to be a lightweight bill such as this one with bipartisan support – or even as a rider to something larger.

In the Senate, Senator Ted Cruz’s (R, TX) S.695 bill or a re-introduction of Senator Mark Warner (D, VA) and Senator Patrick Toomey’s (R, PA) bill from the previous Congress could also do the trick. Continue reading “Consensus Conference This Week; Keep Innovation in America Act Adds Co-Sponsor”

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House Ag digital assets hearing

The House Agriculture Committee has publicly announced a hearing for next Thursday (April 27, 2p) at the Longworth House Office Building, “The Future of Digital Assets: Identifying the Regulatory Gaps in Spot Market Regulation.” See a bit more.

The new Subcommittee on Commodity Markets, Digital Assets, and Rural Development (see it) led by Chair Rep. Dusty Johnson (R, SD) will guide the meeting along with Ranking Member Rep. Yadira Caraveo (D, CO). The hearing’s title may suggest interest in legislation putting certain digital assets under the jurisdiction of the Commodity Futures Trading Commission in the jurisdiction. A reintroduction of House Ag Chair’s GT Thompson‘s (R, PA) Digital Commodity Exchange Act from the 117th Congress could be an outcome.

Rep. Foster on stablecoin bill

Yesterday, Politico covered the now-scuttled stablecoin bill in the the House Financial Services (HFS) Committee. In spite of the decisive rejection of the bill by HFS Ranking Member Maxine Waters (D, CA) and Digital Assets Subcommittee Ranking Member Rep. Steven Lynch (D, MA), at least one HFS Committee Democrat sees hope.

Rep. Bill Foster (D, IL), who was co-chair of the Congressional Blockchain Caucus in the last Congress, tells Politico, “The ranking member and the chairman’s staff are not the people who are going to be deciding this (…) Anything that succeeds in coming out of committee will probably be a bipartisan thing out of the ideological center… That doesn’t happen naturally when it’s a leadership-driven thing, compared to a wide discussion.” Read more. Continue reading “House Agriculture Digital Assets Hearing Next Week; Fed Governor On Blockchain”