The U.S. Congress is holding four different hearings that are directly tied to crypto this month, reflecting growing scrutiny around the industry.
In about 30 minutes, the House Financial Services Committee Fintech Task Force is going to kick off a hearing on central bank digital currencies. It’s one of four major Congressional hearings on crypto this month.
Why it matters
It feels like Congress is starting to look a bit more closely at crypto. Four different hearings in June are going to focus on the recent crypto bull market, whether bitcoin is bad for investors and good for criminals and what lawmakers can or should do about it. To be clear, there have been hearings for years. What's different is we're starting to narrow in on specific issues and clearer examples of topics within the industry.
Breaking it down
I’m going to be honest: I had a plan for this week’s newsletter, but I wasn’t able to get all the reporting I hoped to do. So we’re winging it today, based on a Twitter poll.
Last week, U.S. Sen. Elizabeth Warren (D-Mass.), a former presidential contender and a longstanding advocate for consumer protections, hosted a Senate subcommittee hearing on cryptocurrencies. On paper the hearing was about central bank digital currencies (CBDCs) but bitcoin (and to a lesser extent, crypto at large) ended up being the real subject. And if you’re bitcoin, it wasn’t a great hearing.
Warren took aim at bitcoin’s price volatility, some of the consumer protection concerns around digital assets and the energy required to secure the bitcoin network. These aren’t new concerns – we’ve been hearing about these for years. But last week’s hearing – and another three occurring this month – suggest we’re getting to a new stage of regulatory awareness. Here’s my rough historical summary:
- Bitcoin launches, regulators are aware but not overly concerned and we see some guidance about how the Internal Revenue Service or FinCEN will treat it.
- The initial coin offering boom happens, and the Securities and Exchange Commission jumps in with the DAO report and subsequent enforcement actions.
- Everything changes when the Facebook-led Libra (now Diem) project is unveiled. This really does feel like the turning point. Crypto went from being this quirky magic internet money to having the potential to destabilize the global financial system.
- Regulators start talking about stablecoins and stablecoin regulations.
- At nearly the same time, the coronavirus pandemic begins and regulators start thinking about central bank digital currencies as a regulated, government-controllable alternative to stablecoins.
- Then the crypto bull market begins and attracts even more attention.
So we’ve been heading here for a while. The question is, what happens next? I haven’t seen any proposed legislation but the fact we’re going to see several more hearings (including another one promised by Warren) suggests an increasing amount of discussion from lawmakers.
Odds and ends
There has been a lot of signal on the regulatory front these days. It’s worldwide – not just in the U.S. – and it has been, frankly, a little mind blowing. What’s most interesting to me is all of the moves we’re seeing suggest policymakers by and large are looking at crypto as something that can and should be regulated, but not something that could or should be banned. Some of this has been developing for years but the signaling is certainly far more prominent now than it was even 24 months ago. Here’s a quick list:
- FinCEN announced it’ll finalize its crypto-related anti-money laundering (AML) efforts and rulemaking by this autumn in its list of regulatory priorities. The SEC didn’t mention crypto at all in its own list of regulatory priorities, to the disappointment of Commissioners Hester Peirce and Elad Roisman. A dozen bitcoin exchange-traded fund (ETF) applications are still floating out there, but it’s looking increasingly like we may not see one approved in the near future.
- Speaking of which, the SEC has (unsurprisingly) deferred a decision on the Kryptoin application by 45 days.
- The Central American Bank for Economic Integration will form a technical group to help El Salvador figure out how to implement its bitcoin bill after a request from the Central American nation.
- South Africa wants to regulate crypto businesses and the digital asset sector more broadly, with its financial regulator proposing anti-money laundering rules and other actions to more tightly oversee the industry.
- The Bank of England published a stablecoin paper. It’s basically just evaluating how stablecoins or a central bank digital currency might fit into its economy.
- U.S. Sen. Patrick Toomey (R-Pa.) wants FinCEN to reconsider the proposed counterparty rule and is concerned that recent FATF guidance might “run counter” to FinCEN’s own existing regulatory position.
- Iranian President Hassan Rouhani said he wants to regulate crypto as soon as possible after the country previously warmed to the thought of using bitcoin as a financial instrument.
- Texas’ state bank regulator told banks they can provide crypto custody services under existing law.
Changing of the guard
It feels like we’re in a holding pattern here, so informal poll time: Should I keep this section? (Feel free to email firstname.lastname@example.org or message the Telegram chat with your thoughts.)
- Emmer, Congressional Blockchain Group Ask IRS to Revise Guidance on Charitable Crypto Donations: Rep. Tom Emmer (R-Minn.) has sent another letter to the U.S. tax collector asking for some specific guidance on digital assets.
- New York Crypto Mining Bill Dies in Assembly After Passing State Senate: A New York bill that could have effectively enacted a moratorium on crypto mining operations has died in the state Assembly.
See ya’ll next week!
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