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Blockchain’s New DC Powerbroker: The Digital Assets Subcommittee

Digital Assets Subcommittee

With Rep. Patrick McHenry (R, NC) finally in his House Financial Services Committee Chair last week, the congressman whipped up a selection of subcommittees that will carry his party’s financial services agenda in the 118th Congress.

Among them, a committee devoted to digital assets: The Subcommittee on Digital Assets, Financial Technology and Inclusion led by Rep. French Hill (R, AR), a former banker.

Still to be populated with House Financial Services members from both sides of the aisle, there will be no other committee like it in Congress: digital assets and fintech-focused, all the time.

Bipartisan support for crypto legislation has been a key element of driving digital assets discussion in DC to-date (RFIA, DCCPA, DCEA and stablecoins) even if bills have yet to cross the finish line into law. With a wide spectrum of political viewpoints unifying over a common cause AND attempting to navigate a divided government, this committee would seem to be at the tip of the bipartisan crypto spear.

Topping the agenda for the new subcommittee will be working with (if not helping dictate along with Chair McHenry’s guidance) what the SEC, CFTC, the Fed and any other applicable regulator should do about digital assets and thereby define their jurisdictions.

This will be a years-long, legislative journey as technology and products evolve. But it has to start – or continue – somewhere.

The agenda

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DeFi and DAOs In Spotlight Of Latest CFTC Enforcement Action

Enforcement

An alleged fraudster wreaked havoc on a decentralized asset exchange called Mango Markets according to the latest enforcement action by the Commodity Futures and Trading Commission (CFTC).

In a statement last night, the regulatory agency announced the action against a trader, Avraham Eisenberg:

“This is the CFTC’s first enforcement action for a fraudulent or manipulative scheme involving trading on a supposed decentralized digital asset platform, and its first involving a scheme that is sometimes called ‘oracle manipulation.'”

Regarding “oracle manipulation,” the accused used a data stream (oracle) connected to the price of the Mango token to favorably affect the price of whatever he was trading – in this case, a derivative known as a swap.

The fraud outlined by the CFTC amounts to a classic “pump and dump” where the price goes up just long enough to let the pumper sell his shares, tokens and/or derivatives (this case).

In the space of 30 minutes last October, Mr. Eisenberg reportedly got away with $47 million in digital assets from the Mango Markets platform says the agency.

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Blockchain Industry Smackdown Continues With Stabenow, Scary Statement

No Crypto Allowed

The bad news continued for the blockchain industry last week with two consequential announcements.

First, Senator Debbie Stabenow (D, MI), Chairwoman of the Senate Agriculture Committee, announced out-of-the-blue that she will not run for re-election in 2024 and therefore leave the U.S. Senate at the end of her term on January 3, 2025.

Second, the offices of the Federal Reserve, Comptroller of the Currency and the Federal Deposit Insurance Corporation banded together on January 3 for a clear warning (PDF) that if you’re a bank – therefore regulated by the Federal government – crypto is a no-go. Happy New Year!

Stabenow

For crypto proponents, the loss of Stabenow diminishes the likelihood that the Digital Commodity Consumer Protection Act (DCCPA) – and perhaps any blockchain bill from Senate Ag – will ever see a vote on the Senate floor in 2023. DCCPA which she co-sponsored with Senate Ag Committee Ranking Member and Senator John Boozman (R, AR) remains well-poisoned by FTX CEO Sam Bankman-Fried’s (SBF) involvement.

Sen. Stabenow, 72, prioritized her remaining two years in Congress in a statement saying that “leading the passage of the next five-year Farm Bill which determines our nation’s food and agriculture policies” is critical. Going forward, blockchain is the last thing she wants to mention to voters who are inundated with the latest SBF drama as they consider a Democratic or Republican candidate for Stabenow’s seat in the months ahead.

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Predictions for 2023 Blockchain Legislation in the U.S. Congress

Predictions for the blockchain industry

Washington D.C.’s population is inflating again with the commencement of the 118th Congress and there’s no better time to prognosticate on the blockchain legislation possibilities in 2023.

With the humiliation wrought by Sam Bankman-Fried (SBF) and FTX burned into the Congressional record (1, 2, 3) in 2022, action would appear imminent one way or another.

Let’s predict…

Was DCCPA

The Digital Commodity Consumer Protection Act (DCCPA) from Senate Agriculture Chairwoman and Senator Debbie Stabenow (D, MI) and Ranking Member and Senator John Boozman (R, AR) was in the pole position for new crypto law in the U.S. But with FTX founder and CEO Sam-Bankman Fried’s fingerprints all over this legislation through his congressional collaboration last year, DCCPA looks radioactive.

So, in spite of the theatrics of a December Senate Agriculture hearing where everyone including Commodity Futures Tradiing Commission Chair Rostin Behnam tried to distance themselves from FTX while still professing support for DCCPA, there’s no way forward for the bill.

Enter a re-purposing of DCCPA that will continue to address jurisdiction of the Bitcoin and Ether cash markets by the CFTC.  But, even this bill will be met with skepticism given the SBF connection and his mugshot continuing to clog the mainstream and social media airwaves.

RFIA boost

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Battle of the Bipartisan: Warren-Marshall Bill Challenges Hill’s Crypto Support

Warren-Marshall

Who says Washington is hopelessly divided along partisan lines?

Yesterday, Senators Elizabeth Warren (D, MA) and Roger Marshall (R, KS) co-sponsored a new bill requiring US Treasury’s FinCEN – Financial Crimes Enforcement Network – to further interwine the requirements of Anti-Money Laundering (AML) and Know-Your-Customer (KYC) rules within digital assets.

See a copy of the Bill.

Titled “Digital Asset Anti-Money Laundering Act of 2022,” the legislation appears, in part, to build on actions taken by the U.S. Treasury with mixing service Tornado Cash back in August.

Industry advocate CoinCenter responded unequivocally to the bill’s introduction:

“[The bill] is the most direct attack on the personal freedom and privacy of cryptocurrency users and developers we’ve yet seen. It would force anyone who helps maintain public blockchain infrastructure, either through software development or validating transactions on the network, to register as a Financial Institution (FI).”

The bill would also likely inhibit the growth of the crypto sector due to additional costs associated with cumbersome financial institution compliance requirements.

Bipartisan

Senators Warren and Marshall’s partnership took a page from Capitol Hill’s bipartisan crypto supporters by reaching across the aisle in hopes of driving passage. RFIA, DCCPA, DCEA and many other crypto bills have bipartisan support including the stablecoin bill which is being developed in the House Financial Services Committee.

Marshall’s break is notable in that Republican libertarian views have appeared to mesh well with crypto which promotes self-custody and autonomy even as Republicans support the development of new regulatory guardrails.

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Senate’s FTX Hearing Highlights Fraud Vs Crypto Skeptic Debate

Senate Banking

The Senate Banking Committee convened another Congressional hearing today about the FTX implosion titled, “Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers”.

See the video of the hearing.

Yesterday’s House Financial Services Committee hearing on FTX was hard to top with the current CEO of FTX delivering an indictment of the past CEO Sam Bankman-Fried (SBF), his company’s past performance and even the Bahamian government.

Chair and Sen. Sherrod Brown’s (D, OH) opening statement did not hesitate to address his extreme skepticism of crypto with nothing redeeming to say about the digital currency industry and blockchain technology. He added, “Crypto doesn’t get a free pass because it’s shiny and bright.”

National security, Facebook’s Libra, terrorist financing and more were examples of crypto’s effects that had metastasized for Sen. Brown into a global blight.

Conversely, Ranking Member Sen. Toomey (R, PA) sought to differentiate between the alleged fraud of FTX and the software, code and innovation activating cryptocurrency today.

Sen. Toomey chided those who wanted to stop crypto saying that it cannot be and, in fact, represents a fundamental misunderstanding of the technology. He suggested that those who call for not addressing crypto with legislation at all are misguided. He promoted his own Stablecoin Transparency Act as an important step in providing guardrails for crypto’s growth, let alone the use of blockchain technology.

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