Jan 12, 2023

Rep. Jim Himes (D-Conn.) joins "First Mover" to discuss how policymakers are approaching crypto in the 2023 agenda amid the uncertainty surrounding crypto giant Digital Currency Group (DCG) and the fallout of crypto exchange FTX.

Video transcript

Certainly amid the uncertainty surrounding crypto giant digital Currency group and the fallout of crypto exchange FTX, we are watching how policymakers are approaching crypto in the 2023 agenda. Joining us now to discuss that is Congressman Jim Himes Democrat from Connecticut. Congressman, thanks for joining us this morning. There is a very public dispute between DC G Genesis and Crypto Exchange Gemini which is accusing the former of lies, accounting fraud and commingling of funds. Is this on the radar at all of Congress? And we should note Coindesk is a uh well, DC G is the parent company of Coindesk. That's right. And I should probably note that DC G is based in, in my very own Stanford, Connecticut. Um You know, I would tell you that uh you, you ask about the Congress, I'm, I'm not sure anybody's following. Um you know, we, we, we're seeing the uh back and forth on social media, but I'm not sure that anyone is following that in particular, but it does point to a larger uh a larger issue. Um And you know, we can get into the different uh lanes that are being explored here in the uh in the Congress around crypto and crypto regulation. But, you know, I will tell you that uh even my colleagues who are less, perhaps plugged into the crypto asset world, look at AAA coin base, for example, in $100 million judgment against coin base. Um or, or I guess it was a settlement against coin based. One of the folks that we think of is really uh you know, blue ribbon in terms of what we had believed were compliance and governance, et cetera. Uh Finance remains extremely opaque. And so, you know, none of us have any confidence really that, that there aren't other ftxs uh brewing out there. Um You know, what, what happens within the digital currency group and their lending operations is um uh I, I think still very much up in the air but, but another disaster obviously would simply add fuel to the fire in this building uh to move forward with um uh with, you know, some more clear regulation or more enforcement action against those who uh sec or others believe are not complying. Congressman Himes. Welcome back. You know, we had a, an issue, of course, FTX gave a lot of money, not just to Democrats, but also to the Republican leadership and, and uh they were members of the executive team at or if you can call it that at FTX who also gave to uh Kevin mccarthy's pack and, and uh you know, to the tune of, you know, 7% we have was a, was a big donor to the Democratic Party. So it seemed as if this is a, this is an entity that had its uh that was sloshing money around both left and right, so to speak. Li li literally um does that change how Congress look going forward? Does the fact that it has this sort of uh I, I don't wanna say AAA tat to it, but certainly, um that bit of baggage. Does it change how Congress will regulation will, will they actually, they have a sort of a, um they're looking for, I don't know, a, a bit of a um um you know, so sort of like to wash itself out a little bit from this, this, this uh nightmare by getting a little harsher on crypto regulation than they would have otherwise. Yeah, I don't think so. I mean, I know it's a big story that Sam Baman Fried and his associates, uh you know, really created a huge presence in Washington. You know, there are stories about the money, there are stories about the time that Sam Bank F freed spent with Gary Gusler in the sec. Look, Sam Bank Fried got access for two reasons. Um There's, there's no question that because he was known to be a donor. Uh There were members of Congress who wanted to meet him, he was invited to conferences. Um You know, that was number one, number two, was, I mean, this was just sort of an exotic thing right here is a very, very young individual who is interested in crypto but is also interested in things like inoculations and vaccines and seems to have about 190 IQs, something that's not necessarily common inside the beltway. And so there were a lot of things that and obviously he had a real intention around spending time in DC. So, but the idea that just because he gave a lot of money that, that somehow either slowed or quickened the pace of regulation. Look, the reality is that that more than half of my colleagues around here, you asked them what a crypto asset was, they, they wouldn't have an answer for you. So, um and, and, and I've known Gary Gusler for decades and, and I can tell you that there's no chance that Gary Gensler time spent with Samba and Fried was gonna influence um his decisions at the SEC. So um look, I know it's a story but the idea that, that uh you know, in an institution like mine where people are still coming up to speed on Blockchain on crypto assets that somehow sank Samba and Fried's money was dramatically altering the pace of regulation. Is just not right? II I guess my question though is, is not so much what happened in the past, but going forward, does it change the way in which uh the Congress is going to view regulation. In other words, are they gonna try to get a little bit extra uh difficult if you will? Just because there is this, there was this perception about his access and therefore by showing, hey, you know what? We're not gonna take it, we're, we're gonna, we're gonna flex our muscle here. Do you think that that's a possibility? Granted it is uh Kevin mccarthy's Congress, albeit by a string. But uh nonetheless, do you think that that might, that might have an effect going forward? Yeah, look, I think the collapse of FTX definitely has an impact on the way people here in the Congress think about this, right? Um FDX had become a household name, Super Bowl ads, Stadium, Sam Bank Fried. Uh you know, when, when something becomes a household names, when the investors in an entity like FTX include companies like Light Speed and Tomasic and Oak Hill. Um You know, there's sort of a presumption and I think it's a dangerous presumption that this is a real company instead of the sort of Ponzi scheme it turned out to be. So I will tell you that, you know, shields are up here. Um You know, the industry broadly speaking and the players in the industry no longer have the benefit of the doubt. And as I said, you know, uh I'm not sure um that uh my colleagues would have cast quite a skeptical an eye on companies like Binance um or others um prior to the complete implosion of FTX. So how that's going to play out in regulation? Look, I think, I think this Congress is going to move forward with the stable coin regulation that we almost got done in the last Congress. Great bipartisan work between Patrick mchenry and Maxine Waters on the Financial Services Committee. I think that could get done in the Congress. We're sort of in a vapor lock around this issue of the registration of entities exchanges, et cetera with Gary Goler at the SEC saying I don't need more statute. I've got all the law, I need what I need is for people to comply. And of course many people saying, well, we don't agree with that and so we're not going to comply. So that suggests that we're going to need to figure out whether you know, additional statute is necessary. Um And Gary Gentzler is wrong or whether Gary Guler just needs to do a lot more enforcement to get people to see, you know, his point of view that they should be registering under existing law. So you're right that there's been a lot of talk in Congress like we need to do more and there seems to be increased scrutiny on exchanges like bin but what I haven't really heard many answers to is how would you address specifically a problem like this? Like FDX was not a US exchange FDX US is a very small part of the story Right. And this problem will persist, there will be these overseas entities that, you know, implode. And I, I guess what kind of regulation would address that specific problem because the, the paradox here is that the tighter us regulation becomes, the more likely people are to go to these global exchanges, these kind of Wild West exchanges. Yeah, that's exactly right. And it's a very good question, but it's not a question for which there don't exist analogs, right? Um, you know, in, in traditional finance, um, you know, there is always the risk that activities in, you know, the Cayman Islands or whatever could, uh, uh, outside of the purview of us or European or Asian regulators could create contagion. That's not a new problem for us. Right? And, and there's a lot of complicated answers to your question. The one I would highlight though is that not only do we in the United States need to get our act together with respect to smart regulation. Um, because you're right, if it's not smart regulation, this industry more than others can very easily up and move anywhere it wants to move. But we need to work in harmony with Europe. We need to work in harmony with Asia. You know, that's true of traditional finance. It's true of, of, of, of this as well because at the end of the day, yeah, you can move your company to the Bahamas, but you're ultimately going to need to have customers somewhere and where those customers are matter. You know, you're going to need to have clearing services, you're going to need to have custodian services that points to the need for harmonization internationally, not just getting it right here in the United States. Well, what do you see as the crypto agenda for 2023 in Congress? Then if, if, uh, would you see the Gillibrand bill moving forward? The DC CPA, the D ce A? Uh We have heard comments from Sec Commissioner has purse telling Bloomberg that it certainly would be helpful for Congress to act. Uh RPP will also saying Congress must examine the SCC role in the recent crypto contagion. Yeah. So, um as I, as I mentioned before, I think, um where we've really got some momentum is on the question of stable coins. Um and, and, and that may be the place to start, right with, you know, tens of billions of dollars of stable coins trading every day. Um That's probably the place to start. We've made good progress here in the House in particular. Um As I mentioned before in good bipartisan fashion, this is still a pretty polarized place. But um uh the leadership of the Financial Services Committee actually got almost to the finish line on uh definition of stable coin, what they would look like, who would regulate them. Not quite done yet, but I think that that can get done in this congress. Um You know, with respect to registration and all of the, how he test stuff and what's a security and what's a commodity. Um, you know, that, that gets a little bit more complicated and it's hard for me, particularly with, uh, the new Republican majority in the House to know what could move. Uh, and again, we're getting sort of conflicting, um, points of view from regulators. Right. So Gary Gel's position has been very, very clear to us anyway, which is that I've got all of the, all of the statutory authority I need people aren't just, are not compliant. Now, Jay Clayton, the former chair of the SEC, as you know, uh wrote an op ed in the, in the Wall Street Journal a couple of months ago in which he said at a minimum, the EC ought to put out, you know, script of guidance because there is some ambiguity about whether an exchange registers here, how they do it, etcetera. So there's a little bit of a, a little bit of a dispute between the current and the last head of the uh of the EC, which makes us uncomfortable, right? Because both of those guys understand crypto assets and the regulation uh better than most members of Congress.

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