Apr 14, 2023

Bloomberg reports that Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam accused crypto exchange Binance of intentionally breaking regulatory rules during an event hosted by Princeton University on Thursday.

Video transcript

The state of crypto is presented by Tron connecting the world to the power of Cryptocurrency. All right, shifting over to the world of regulation, CFTC chair, Roston Benham is doubling down on Binance with the agency alleging the crypto exchange offered unregistered crypto derivatives products and directed us customers to evade compliance controls through the use of VPN S. Joining us to discuss this and more is Ron Hammond, Director of Government Relations at the Blockchain Association, a Washington based crypto lobbying firm. Good morning there, Ron, how are you doing? I'm doing good, Zach, how are you? I am doing well joining us from DC. I presume. Yes, sir. I know it's a little hard to see in the background there. We got the capital uh back over there navy yard where, where I'm located right here on the hill. So, um and in DC, I'll tell you that looks, looks lovely and I hear the humidity is yet to kick in. So enjoy. Get outside today. All right, let's, let's dig in. Let's go to this, uh this Bloomberg report about the CFTC chair, Roston Benham kind of doubling down again on his, on his attacks on Binance, he said, uh according to Bloomberg report at a Princeton University event that Binance are quote, not unsophisticated individuals. They are starting large companies and offering futures contracts and derivatives to us customers end quote. What do you make of these latest comments and the rhetoric that we're seeing out of the CFTC? Yeah, of course. You know, the thing with the CFTC, uh lawsuit with Binance is first off, it's no stranger in DC Bance is not well liked here. The two top names that come usually uh after FTX are Binance and uh Tether for quite some time. And so at the same time, we also see the CFTC going first here with uh their suit, which is important to highlight because we also know that dog, IRS and SEC are also looking into Binance. So I think the shoe has yet to drop. This is just the first of likely many suits come. Uh And we know at least here in DC B has really been stepping up their game in terms of lobbying and a efforts. Uh It's probably too late though. It looks like more of the cleanup crew considering all that's happened in the past and some pretty damning evidence, especially in the CF DC lawsuit uh from this uh on Binance. Yeah, some of those chat logs are a bit damning. Indeed. You mentioned the SEC. I know you guys are busy gearing up for a testimony from SEC chair next week. Uh, so sesec chair, Gary Gusler next week, what are you guys anticipating out of that hearing on Capitol Hill? And what can the crypto world expect, uh, to hear? Well, Zach, the thing to highlight, especially with Gary Gun in the House Financial Services Committee is that it's been a year and a half, at least since Gary Gun has testified in front of that committee. He testified in the Senate in 2022 but he did not testify in the house at all. So think about all that's happened in the crypt bill market since October of 2021 which is pretty uh important to highlight in terms of everything that folks say that gun is doing or not doing, in terms of actions, the regulation by enforcement for some good players, not catching some of the bad actors after the fact. And then a lot of the rules he's been proposing not just on things like custody, but also outside crypto like ESG and stuff which do go along the main line at Republican tropes. And I think the last thing to highlight is that usually in these hearings, you're going to have the party that has the administration in power. So in this case, the Democrats really trying to play defense for their own. But there are a lot of folks on that committee on the Democrat side of the aisle who are not impressed with Gary Gusler on a multitude of fronts, but most notably on crypto for several folks like progressive Richie Torres or for more moderate Josh Got Heimer and several other ones down the line as well. So I think he's gonna be in for a, uh, a really tough hearing. There's supposed to be no time when this hearing ends. So it's gonna go on for quite some time and a lot of members are trying to get some licks in II, I sort of want to go back to, to the discussion here with Binance just for a second because I, as you said, that their lobbyists are out there on Capitol Hill uh trying to try to protect their client and that's understandable but uh because they're paid to. Um But how do you uh how do you differentiate yourself to those, to those members of uh the hostile to crypto community if you will on the hill? How do you differentiate what you're trying to do with what Bin is trying to do? Do they see the difference or are they just saying, look, you guys did the same thing? No, I see on Capitol Hill, there definitely is a noticeable difference here. You know, we have folks like Coinbase who has spent years on the ground educating policy makers about their business model and what they do. Um You know, even when I was a Hill staffer on Capitol Hill, uh back in 2017, I met with Coinbase several times to learn about their product services, finance was nowhere to be seen. Um Most exchanges had no pre DC. Obviously, it's changed a lot in the past six years and we've seen a lot of engagement from stakeholders, but B has came especially very late to the game here and that's after a multitude of issues with potential money laundering accusations, other enforcement actions coming down the pipeline. And it seems like they're more playing uh cover here or at least DC has been spending the six plus years being educated to know, hey, we have a US company that's been complying with regulation or trying to comply with regulations with the SEC like coin base and yet is served with a wells notice and they have taken every approach to try to be compliant and to try to engage. You did the opposite and it, the shoe may drop pretty soon, but they are also getting the same uh unfortunately, lawsuits as well. And so it's, this is the issue that we have in DC is that no matter the approach you take, it seems like you're still going to be at the end of wells notice or enforcing action and that's no way to regulate industry. And a lot of folks we're talking to you in the industry are saying no matter the approach, it seems like we're still going to get hit. So why are we still spending our resources and time here in DC or the United States as a whole, you know, you, you, you, you mentioned circle here uh and uh Elizabeth Warren and also uh a OC who's uh who has no problems using tiktok, even though it's basically malware, uh they sent a letter to block, to block and circle asking why they use Silicon Valley Bank. So do you think that the, the questions about the banking sector and specifically some of these banks that have uh collapsed and are no longer with us? Do you think that that's going to translate into a long term problem on Capitol Hill for crypto of sorts? We're still trying to figure out right now if there is a coordinated federal um campaign, we actually just launched a four year request today to um the uh FH fa as well as the nydfs mostly around the issue of signature trying to find out what happened and get to the matter of facts here. Uh And I think the four year request is gonna uh hopefully bring more that situation to light in terms of the list of Warren and a OC letter. Uh A lot of folks in crypto understand it's been really hard to get a bank account in crypto bank situation. Uh They've been having a hard time uh opening up A G like, you know, P Morgan or Wells Fargo, they've been going to community banks or folks like signatures and Silver Gate and others. Uh And so right now after the collapse of SBB and Signature and Silver Gate. They're, they having a hard time trying to find some bank accounts, uh at least from our membership. Most of our folks have been able to get bank accounts elsewhere, but we're still trying to make sure that there's no political campaign um or push from the FDIC or other regulators to try to shore off crypto entirely from the banking sector because there have been rumors, but we need to see the evidence and we're still sifting through that right now because if that does happen, that is a very big violation of the law. And I think there'd be a lot of policymakers on both sides of the aisle who are going to be critical of that. Even if they don't believe in crypto, it's still a legally uh business and still regulated and therefore they need to have access to bank accounts to make payroll and uh there is this effort to push them away. That is definitely legal. Yeah, Ron, I want to go in on that for you, the freedom of information Act request that you guys filed. You just announced that this morning. Um You know, those, some of the stuff that we heard from former Congressman Barney Frank, who was sitting on the board of signature at the time it was taken over by regulators, some of that stuff is pretty damning, but beyond some of those public statements and maybe you're alluding to this process, uh starting to begin. Do you have any sort of evidence that suggests that this was a coordinated takedown that had more to do with the bank's involvement in crypto than with the health of its books. See, I think the Barney Frank situation, I've talked to a lot of my democratic colleagues who were around when he was chairman of the Financial Services Committee. Um and it's been a mixed view. Some folks say that he's trying to um you know, cover his end here on one extent. But the other time there are legitimate questions and that's why we did that for your request around the signature bank closure, especially there is a lot of things that still need to be uh unveiled there. Um But at the same time to your point about evidence, we know for a fact, there are folks who have bank accounts at well fully functioning banks who have been closed out recently. Um and the reasons uh they vary but there really haven't been a smoking gun in terms of, oh, a certain regulator told us to do such. Uh It's still been pretty unfortunate, at least at this stage, they haven't given that evidence yet, but we're still sifting through because it's been happening at a pretty alarming amount. But again, I will want to say that there are folks who have lost bank accounts but have been able to get bank accounts at other institutions. But regardless, it's still frustrating to see at least the crypto industry which has come so far, which has been, um, around for quite some time is still having this hard problem of getting bank accounts. I mean, I dealt with this when I was, uh, on Capitol Hill as well with the marijuana industry where there are legal businesses, but they could not get bank accounts because, uh, of the various federal laws surrounding, uh, marijuana as well as the making laws as well. So, um it, it been a problem for quite some time for, I mean, do you think, do you think that the regulators actually care? Iii I know for us it's very important but when we look at the overall market cap of crypto, it's still smaller than many companies on the S and P 500. Do you think that they actually do care if, whether or not they lose crypto as an industry in the United States, we already are losing crypto. United States. Uh There was an electric capital uh study that came out, I believe it was uh two months ago that showed that we went from 40% of the world's Blockchain developers to 29%. And that in the past, you know, recent years, actually, I think if you've seen anything in 2022 and the action from the regulators, I don't think that number of 29% is gonna go up any time soon. A lot of folks are talking to are saying, rather than trying to start the United States and move elsewhere, we're just gonna start elsewhere and build our projects and we're seeing that in well regulated countries like France, UK and others. So, uh there, there is a pretty notable hostility recently towards crypto in DC. And we are trying to make sure we rectify that by a pointing out bad actors like buy in this situation. But at the same time, showcase good actors like coin base who have really gone up beyond in terms of trying to comply with the regulators and are still met with a wells notice. And that's unfortunately a pretty damning situation that we have to thread that needle. But I think we're going to make some good progress. I think you're going to see a lot of updates in the next two weeks from Congress that's going to a check the regulators. But b also come out with some legislation that I think for the first time in quite some time has a chance to move and that's going to be really critical for these next nine months. Yeah, last question here, Ron, you know, I know it's been a very hectic couple of months in DC. A lot of shoes have already dropped. You mentioned that more shoes may be in the process of falling soon. What should we be looking out for in terms of these next big headlines on the regulatory enforcement front? So on the enforcement front they are pretty close to the chest with, uh, windows come out. I mean, I know we do have, um, you know, some inklings like the buying situation with DOJ and I RSS EC having open investigations. So, uh, we'll see about that again. I mentioned the coin base Wells notice, I'm sure several other folks recently have gotten Wells notices from, uh, the SEC but just aren't as public Coinbase. Uh, Coinbase decided to take a public stance on fights. Um But then I will also say you're going to see legislation likely coming um really, really soon, potentially, even next week from folks like Rand who said about mid April, we're going to see some legislation. We're gonna be seeing a stable coin hearing next week as well. Uh As you may recall, that was a bipartisan effort that actually contradicted a lot of what the SEC has been doing recently in the stable coin realm. And then finally, market structure. I think we're gonna see um some movement uh from the house, especially on what does it look like with the CFT CS role in the crypto space? We see the SEC really playing big dog here. At the same time, the CFTC has, has some teeth as well and uh it looks like they want to make sure we have a clear jurisdictional line. Uh and the good news, there's bipartisan support for that. And again, I want to say there's a chance that we have some movement, especially in the house in the next couple of months. Very interesting. We'll be definitely watching that closely. Thanks so much, Ron Hammond that right there is the Blockchain Association's Director of Government Relations. Thanks so much for joining us and you can check out Ron's colleague, Kristen Smith at consensus in Austin, Texas in less than two weeks. Oh my, it's coming up quickly. We hope to see you down there.

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