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FDIC and the digital economy

Wednesday’s House Financial Services hearing on the recent banking failures has apparently revealed some question as to whether FDIC Chair Martin Gruenberg is willing to allow the purchase of the Signature Bank’s Signet platform which has provided an important on-ramp for fiat currency into cryptocurrency . The Wall Street Journal reported, “During the hearing, Majority Whip Rep. Tom Emmer (R, MN) asked Mr. Gruenberg whether he’d commit to allowing any buyer of Signet to continue serving digital-asset customers. ‘If that’s the nature of the acquisition, yes,’ Mr. Gruenberg said.” Read more.

But, in an edited video which includes Gruenberg’s response to a question from Rep. Andrew Garbarino (R, NY) who asks a similar question to Emmer’s, Gruenberg appears to contradict himself. Emmer said later in a Twitter thread, “Get your story straight, Chairman Gruenberg… You’re on the Congressional Record. Did the FDIC sell Signet or not? And if not, why is our government controlling one of the few private sector 24/7 money rails that supported the digital economy?” See the video.

Senator Marshall

Senator Roger Marshall (R, KS) is taking it on the chin from conservatives – namely, Club for Growth, FreedomWorks and Americans for Tax Reform – due to his partnership with Senator Elizabeth Warren (D, MA) over crypto assets and the “Digital Asset Anti-Money Laundering Act of 2022.” (Warren has said this bill will be re-introduced shortly in the 118th Congress.)

Continue reading “Majority Whip Emmer Calls Out FDIC’s Gruenberg; Tokenization In Bond And Art Markets Grows”

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SEC – budget 2024

Yesterday, Securities Exchange Commission (SEC) Chair Gary Gensler testified about his agency’s budget for 2024 in front of the House Appropriations Subcommittee on Financial Services and General Government.

The Chair indicated in his prepared testimony that his agency will need 170 additional full-time “equivalents” for 2024 which will bring the SEC’s total employee base to approximately 5,139 FTEs.

As for crypto, “rapid technological innovation in the financial markets has led to misconduct in emerging and new areas, not least in the crypto space. Addressing this requires new tools, expertise, and resources” and translates into 1,434 total FTEs in the enforcement division alone for 2024.

• • Chair Gary Gensler’s Testimony at Hearing before the Subcommittee on Financial Services and General Government – SEC.gov
  • SEC’s Gensler Insists Clear Rules for Crypto Market ‘Already Exist’ – Decrypt
  • See the video of the hearing  – YouTube

SEC – enforcement business

Gensler also said in his prepared testimony that 750 enforcement actions in FY 2022 resulted in $6.4 billion in penalties and disgorgement.

With 1,311 FTEs in enforcement in 2022, each SEC employee generated about $4.8 million. That’s a good business.

• • 2024 congressional budget justification annual performance plan (PDF) – SEC.gov

Tip: To give a sense of crypto’s relatively diminutive scale versus TradFi and the SEC’s enforcement team which is generating $6.4 billion a year, Aave is the largest DeFi lending market by Total Value Locked (TVL) at ~$8 billion according to FS Insight.

Continue reading “SEC Chair Gensler Delivers Budget for 2024; Treasury’s Liang Says Crypto Not Cause of Bank Collapses”

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McHenry – SEC hearing

House Financial Services Committee Chair Rep. Patrick McHenry (R, NC) announced that a Securities and Exchange Commission (SEC) oversight hearing with Chair Gary Gensler will take place on April 18 and digital assets will be a key focus of the hearing. Read a bit more on Politico.

Tip: April 18 is also the same day that the EU will be hosting final discussion in European Parliament on its Markets in Crypto-Assets regulation. The final vote on MiCA should be the next day.

McHenry – House Ag’s Thompson

Speaking to Punchbowl News yesterday in Washington, DC, Chair McHenry said that he has “come to terms with the political reality that we’re not going to create a new regulator” and, furthermore, he’s “spent the last couple of months working out a set of principles” with House Agriculture Committee Chair Glenn “GT” Thompson (R, PA) on a digital assets approach:

• • “That means you have a securities regime and a commodities regimes, and then we have potentially an ‘other,’ which means you raise capital through an existing securities regime methodology, which we have to legislate. Then, once an asset becomes effectively a commodity, it would then switch out of that jurisdiction into the commodities jurisdiction. And so we’ve worked this thing out… (market structure)”

McHenry – stablecoins

Chair McHenry saw light at the end of the tunnel for stablecoins – echoing Ranking Member Rep. Maxine Waters (D, CA) comments two weeks ago –  and a timetable:

• • “On stablecoins, [Ranking Member Waters] and I had very healthy conversations about this. We have the broad frame of how to approach stablecoin legislation… The specifics of that were the dividing points for our two conferences. House Republicans and House Democrats were in different spots on a lot of the specifics. But, the general architecture, we have, and so we will move forward with both those pieces of legislation, market structure and stablecoins, and I hope to do this before it gets miserably hot here in DC.”

Continue reading “House Financial Services Convenes Digital Assets Hearing With SEC Chair Gensler”

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Binance enforcement – overview

The Commodity Futures Trading Commission (CFTC) announced an enforcement action against cryptocurrency platform Binance and its founder/CEO Changpeng “CZ” Zhao yesterday.  “The defendants allegedly chose to knowingly disregard applicable provisions of the CEA (define) while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit.”

Press release: “CFTC Charges Binance and Its Founder, Changpeng Zhao, with Willful Evasion of Federal Law and Operating an Illegal Digital Asset Derivatives Exchange“

CFTC Chair Rostin Behnam commented in the release, “For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance. This should be a warning to anyone…”

Complaint: The 74-page complaint filed in the Northern District of Illinois (PDF)

The initial charges are about Binance’s derivatives products and continuing (years-long) violation of Anti-Money-Laundering and Know-Your-Customer requirements which are meant to curtail illicit/terrorist financing. At the same time, it appears that Binance also onboarded U.S. customers outside of their Binance.US entity.

Related: Statement of Commissioner Kristin Johnson in Support of the CFTC Complaint Alleging Binance…

Binance enforcement – winners & losers

Continue reading “CFTC Delivers Enforcement Action Against Binance”

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two hearings this week

They may not be on digital assets exactly, but this week’s hearings by Senate Banking and House Financial Services on the recent banking crisis could bubble up issues related to digital assets such as reasons behind the crypto carve-out of Signature Bank post-insolvency. Government skeptics will be on the lookout for suggestions of Choke Point 2.0.

10 a ET, Tuesday, March 28: “Recent Bank Failures and the Federal Regulatory Response” – Senate Banking Committee 

Witnesses include The Fed’s Michael Barr, U.S. Treasury’s Nellie Liang and FDIC Chair Martin Gruenberg. More info and live video will be here.

10 a ET, Wednesday, March 29: “The Federal Regulators’ Response to Recent Bank Failures” – House Financial Services (HFS) Committee 

Witnesses include Barr, Liang and Gruenberg. See more here.

House Republicans are already asking questions of U.S. Treasury Secretary Janet Yellen regarding Federal Stability Oversight Council’s (FSOC) responsibility amidst the banking criss. See the letter (PDF) from HFS Subcommittee Chairs Rep. Andy Barr (R, KY) and Rep. Bill Huizenga (R, MI).

institutional crypto custody

NASDAQ plans on rolling out a new digital assets custody product before the end of June according to Bloomberg. NASDAQ CEO Adena Friedman tipped her company’s hand on digital asset custody plans last September saying in a press release, “The technology that underpins the digital asset ecosystem has the potential to transform markets over the long-term. To deliver on that opportunity, our focus will be to provide institutional-grade solutions that bring greater liquidity, integrity, and transparency to support the evolution.” Read more.

Blockworks notes that there appears to be a growing wave of institutional investor interest which companies like NASDAQ and BNY Mellon (announced a custody product for Ether and Bitcoin in October) want to capture. More here. Continue reading “Hearings Could Impact Digital Assets This Week; Coinbase Versus SEC – The Last Stand?”

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protect the developers bill

Majority Whip Rep. Tom Emmer (R, MN) is back in the digital assets legislation news with a re-introduction of a bill aimed at ring-fencing blockchain developers and service providers such that they are not required to have money transmitter licenses since they do not custody customer funds.  The “Blockchain Regulatory Certainty Act (BCRA)” first appeared in 2018. This bill is co-sponsored by fellow Congressional Blockchain Caucus co-chair Darren Soto (D, FL).

Read the press release: “Emmer Introduces Bill to Provide Regulatory Clarity for the Blockchain Ecosystem”

The bill is similar – with its limited scope – to the “Keep Innovation in America Act” by Rep. Patrick McHenry (R, NC) and Rep. Ritchie Torres (D, NY) earlier this month which seeks to fix a taxation issue around custody providers and the like created by the Jobs Act of 2021.

protect the developers bill – bipartisan

Two notes about the “Blockchain Regulatory Certainty Act (BCRA)”  legislation: 1) as noted above, limited scope; and 2) bipartisan.  Rather than trying to push something through Congress that’s comprehensive and therefore more time-consuming to develop and find consensus, another strategy for digital assets is to take things piecemeal. Yet, the issues here are a divided Congress and a Senate that doesn’t pass a lot of legislation (regardless of party control) in comparison to the House. Continue reading “Blockchain Regulatory Certainty Act Re-Introduced; SEC Alerts Investors On Crypto”

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anti-CBDC bill

Yesterday, Senator Ted Cruz (R, TX) who has been making noise lately (see his bill on Jobs Act crypto taxation changes)  that he wants a seat at the digital assets legislation table, announced the re-introduction of an anti-Central Bank Digital Currency (CBDC) bill co-sponsored by Senator Mike Braun (R, IN) and Senator Charles Grassley (R, IA).

See: S.887 – A bill to amend the Federal Reserve Act to prohibit the Federal reserve banks from offering certain products or services directly to an individual, and for other purposes – Congress.gov

From the press release: “Specifically, the legislation prohibits the Federal Reserve from developing a direct-to-consumer CBDC which could be used as a financial surveillance tool by the federal government, similar to what is currently happening in China. The bill aims to maintain the dollar’s dominance without competing with the private sector.” Read the release.

This bill echoes the efforts of Majority Whip Rep. Tom Emmer (R, MN) who introduced the “CBDC Anti-Surveillance Act” in late February – read more on that one.

Coinbase – enforcement action imminent

Coinbase announced yesterday afternoon that the Securities and Exchange Commission served the company a Wells notice which means an enforcement action is imminent. The company’s reaction was measured and disappointed as Coinbase’s Chief Legal Officer Paul Grewal explained on the company blog, “Today’s Wells notice does not provide a lot of information for us to respond to. The SEC staff told us they have identified potential violations of securities law, but little more. We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so.” Continue reading “Anti-CBDC Legislation From Senators; Coinbase Confronts Imminent SEC Enforcement Action”

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White House throws shade

In President Biden’s 2023 Economic Report released late yesterday, cryptocurrencies come under harsh scrutiny that seems to double-down on any previous criticism made by the White House. A section titled, “The Perceived Appeal of Crypto Assets,” (p. 239) begins, “This section reviews the potential benefits that crypto assets may offer, as often touted by their proponents, while the next section evaluates what they have actually achieved.” Not much, according to this report. Read more from Nikhilesh De at CoinDesk.

Tips:

• • Statement from CEA Chair Cecilia Rouse on the Economic Report of the President – WhiteHouse.gov
  • Economic Report of the President 2023 – WhiteHouse.gov

IRS needs token comments

The United States’ Internal Revenue Service is looking for comments on tax treatment for non-fungible tokens (NFTs). According to the IRS, “Until additional guidance is issued, the IRS intends to determine when an NFT is treated as a collectible by using a ‘look-through analysis.’ Under the look-through analysis, an NFT is treated as a collectible if the NFT’s associated right or asset falls under the definition of collectible in the tax code. For example, a gem is a collectible under section 408(m); therefore, an NFT that certifies ownership of a gem is a collectible.” Read the release. Continue reading “White House Economic Report Pulls No Punches On Crypto; IRS Needs Comments On NFTs”