Casey Wagner

This is a segment from the Forward Guidance newsletter. To read full editions, <a href="https://blockworks.co/newsletter/forwardguidance">subscribe</a>.



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It’s that time of the year: Republicans are finalizing their picks for House committee and subcommittee chairs.&nbsp;



For eagle-eyed crypto fans, you probably saw Rep. French Hill was nominated to chair the House Financial Services Committee. Also of note, Glenn Thompson is slated to hold on to his position as Agriculture Committee chair.



Let’s run through what these representatives have said about crypto and what could be in store for policy next session:&nbsp;



<h2 class="wp-block-heading">French Hill </h2>



Hill was the first-ever chair of the House Subcommittee on Digital Assets, Financial Technology and Inclusion, serving for the past two years.&nbsp;



Chair Maxine Waters created the subcommittee during the 116th Congress. It was expanded to also include crypto matters this session under Chair Patrick McHenry, who did not run for re-election. Since broadening its scope, subcommittee hearings have been held on <a href="https://blockworks.co/news/defi-hearing-lawmakers-clash">DeFi</a>, crypto <a href="https://blockworks.co/news/lawmakers-frustrated-with-sec-crypto-approach">market structure</a> and the role of federal agencies.&nbsp;



Hill received bipartisan support Thursday following his nomination announcement. Democrat Ritchie Torres, a fellow crypto-friendly rep, <a href="https://x.com/RitchieTorres/status/1867304053291823505">said</a> he looks forward to continued bipartisan cooperation next session.&nbsp;



<h2 class="wp-block-heading">Glenn Thompson&nbsp;</h2>



You may be wondering what the Agriculture Committee has to do with finance. But this group actually tackles a lot of pressing issues, specifically with commodities and derivatives markets. As many crypto advocates <a href="https://blockworks.co/news/crypto-must-work-closely-with-regulators">push</a> for more regulation from the CFTC and less from the SEC, the Ag Committee could prove crucial.&nbsp;



Thompson introduced the Digital Commodity Exchange Act last session — a bill that went on to influence <a href="https://blockworks.co/news/house-passes-act-fit21-with-bipartisan-support">FIT21</a>, which passed through the Ag Committee and later the full House with backing from both parties. A major part of the legislation is granting the CFTC authority to oversee crypto spot markets, a distinction <a href="https://blockworks.co/news/cftc-chair-asks-congress-for-greater-oversight-on-crypto-market">agency leadership</a> and industry actors have supported.&nbsp;



Thompson, a co-sponsor of FIT21, <a href="https://blockworks.co/news/republicans-crypto-market-structure-bill">said</a> last year the legislation had been drafted based on “extensive feedback from stakeholder and market participants.”&nbsp;



The bill “aims to close existing authority gaps, ensuring US leadership in financial and technological innovation,” he added.&nbsp;



Committee nominees must be ratified by the House Republican Conference, which is expected to meet next week.&nbsp;



Meanwhile, over in the Senate, there’s <a href="https://blockworks.co/news/sec-commissioner-crenshaw-vote-delayed">still no word</a> on if (or when) senators will vote to confirm SEC Commissioner Caroline Crenshaw before Congress recesses next week.&nbsp;



Senate Banking Committee Chair Sherrod Brown on Wednesday attributed the delay to Republican senators heeding &#8220;corporate special interests and standing in the way of [Crenshaw’s] nomination.”&nbsp;



Next week should be interesting.



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Forward Guidance newsletter

Republicans nominate pro-crypto reps to lead key House committees 

Katherine Ross

In a hearing on Capitol Hill, lawmakers considered whether or not the Securities and Exchange Commission needs reform.&nbsp;



Representative French Hill, R-AR, brought up the SEC’s recent court loss in its case against Debt Box.&nbsp;



The case, in which the defendants claimed that the SEC lied to freeze company assets, was a loss for the regulatory agency after the Utah-based judge sanctioned the agency.&nbsp;



“Just in the last few days, a Utah judge imposed sanctions on the SEC for ‘bad faith conduct’ and ‘gross abuse of power’ that the Commission had demonstrated in a case against Debt box. And this is important because we haven&#8217;t talked about this in a long time on this Committee, and as a result of power, the Commission is required to pay the legal fees, which means the constituent tax dollars are now being used to pay for the SEC overreach and failure,” Hill said.



Read more: <a href="https://blockworks.co/news/sec-erred-in-debt-box-case">DEBT Box defendants say SEC’s deception impacted personal, business endeavors</a>



“The <a href="https://blockworks.co/tag/sec">SEC</a>, under Gary Gensler, blatantly and repeatedly oversteps its statutory authority,” Hill continued.&nbsp;



While the hearing itself wasn’t focused solely on the agency’s actions against crypto companies or about its general approach to crypto, <a href="https://blockworks.co/news/sec-2023-crypto-enforcement-actions">other crypto-related actions</a> were brought up.&nbsp;



John Gulliver, the executive director of the Committee on Capital Markets Regulation, was asked about SAB 121 — the agency’s Staff Accounting Bill — which would seek to require digital asset custodians to report so-called “corresponding assets” and liabilities on balance sheets for custodied cryptocurrencies.&nbsp;



The SEC’s staff previously said that it would help to mitigate “risks and uncertainties” around safeguarding crypto assets. The House Financial Services Committee <a href="https://blockworks.co/news/house-committee-resolution-against-sab121">passed a resolution to appeal SAB 121</a> last month.



Gulliver said that the SEC should “rescind SAB 121.”



“SAB 121 is extremely harmful to investors in crypto markets. They&#8217;d benefit from having custody from well-regulated financial institutions, and SAB 121 prevents it,” he continued. Instead, he added, the SEC should focus on rules that could allow for the regulation of crypto exchanges.



Cato Institute’s Jennifer Schulp said that the <a href="https://blockworks.co/news/crypto-firms-file-lawsuit-against-sec">SEC’s current regulatory approach</a> is the “wrong one” because it drives business for newer technologies — including AI and crypto — overseas.&nbsp;



The current approach, she added, makes the regulatory environment both uncertain and “downright hostile.”



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French Hill

DEBT Box loss shows SEC ‘overreach and failure,’ Hill says

Rep. French Hill, R-Ark., kicked off the House Financial Services Committee’ digital assets subcommittee meeting Tuesday afternoon with a dig about the ongoing controversy surrounding the US Securities and Exchange Commission.&nbsp;



“It&#8217;s clear some rogue regulators threaten consumer protections in the digital asset market as much as any bad actor,” Hill said during his prepared remarks at the start of the hearing. “I think we just witnessed the latest in Washington&#8217;s technological vulnerabilities yesterday, and a real low point for the SEC.”&nbsp;



Hill’s comments refer to a market-moving fake post on the SEC’s official X account that claimed the agency had approved bitcoin <a href="https://blockworks.co/tag/etfs">ETFs</a>.&nbsp;



Read more: <a href="https://blockworks.co/news/bitcoin-etf-approval">Gary Gensler says SEC’s X account was compromised, posted fake bitcoin ETF approval news</a>



Fifteen minutes later — and <a href="https://blockworks.co/news/bitcoin-rallies-then-crashes-after-etf-approval-post-from-compromised-sec-account">after bitcoin had surged to just under $48,000</a> — SEC Chair Gary Gensler clarified publicly that the agency&#8217;s account was “compromised” and no bitcoin ETF applications were approved. 



“In this Congress, our committee has scrutinized the repeated and proactive efforts by certain Biden financial regulators to take aggressive agency actions against disfavored industries through guidance, rulemaking, supervision and enforcement,” Hill said, mentioning the Financial Stability Oversight Council’s inconsistent track record with crypto.&nbsp;



Hill added that he and House Financial Services Committee Chairman Patrick McHenry, R-N.C., would issue a letter to Gensler “to start the process of getting to the bottom of how it happened.”&nbsp;



Senators J.D. Vance, R-Ohio., and Thom Tillis, R-N.C., announced late Wednesday they had also written to Gensler about the incident, calling it an “unacceptable” and “colossal error.” 



Other Republican US senators chimed in as well, including Bill Hagerty, R-TN, and Cynthia Lummis, R-WY.&nbsp;



Read more: <a href="https://blockworks.co/news/sec-investigating-x-account-unauthorized-access">SEC will investigate, ‘determine appropriate’ steps following X account compromise</a>



“Just like the <a href="https://blockworks.co/tag/sec">SEC</a> would demand accountability from a public company if they made such a colossal market-moving mistake, <a href="https://blockworks.co/tag/congress">Congress</a> needs answers on what just happened,” Hagerty wrote via his X account late Tuesday. “This is unacceptable.”



In a statement shared with Blockworks, the SEC said Wednesday that the compromise incident was referred to the Federal Bureau of Investigation and the securities regulator’s inspector general.



Notably, the agency appears to seek to quash rumors that the tweet in question had been drafted by agency staff and erroneously posted.



“The unauthorized content on the @SECGov account was not drafted or created by the SEC,” the agency said. “We will provide updates on the incident as appropriate.”



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ETFs

‘A real low point’: Congressman calls out SEC bitcoin ETF drama during House hearing

Senator Cynthia Lummis and Rep. French Hill penned a letter to US Department of Justice Attorney General Merrick Garland on Thursday.



Hill and Lummis — both of whom have been advocates for crypto — penned the letter following reports that Hamas, and “bad actors,” used Tether and Binance.



Israeli authorities reportedly asked Binance to shutter around 100 accounts tied to Hamas. <a href="https://blockworks.co/news/israel-freezes-hamas-crypto-accounts">Tether froze 32 addresses</a> controlled by both Hamas and “Russian-linked entities.”&nbsp;



The letter cites a report from the Wall Street Journal which is facing controversy after Elliptic — the blockchain analysis firm named in the WSJ report, <a href="https://blockworks.co/news/wsj-elliptic-crypto-fundraising">refuted the figures cited in the article</a>.



The two asked Garland to “reach a charging decision on Binance that reflects their level of culpability.” The DOJ initially launched a probe into Binance back in 2018, with both the IRS and DOJ <a href="https://blockworks.co/news/irs-justice-department-probing-binance">seeking answers from Binance back in 2021</a>.



Reuters <a href="https://www.reuters.com/markets/us/us-justice-dept-is-split-over-charging-binance-crypto-world-falters-sources-2022-12-12/">reported</a> in December 2022 that the Justice Department was split about charging the exchange after <a href="https://blockworks.co/news/sam-bankman-fried-recap-trial-week-one">the collapse of FTX</a>.



The US Securities and Exchange Commission, however, filed a <a href="https://blockworks.co/news/sec-allegations-against-binance">lawsuit against Binance back in June</a>, alleging that Binance and Binance US sold unregistered securities. Binance also, according to the suit, evaded regulatory oversight and “put the safety of dollars of US investor capital at risk and at Binance’s and [CEO Changpeng] Zhao’s mercy.”



Hill and Lummis wrote, “Binance, notably, is an unregulated crypto asset exchange based in the Seychelles and Cayman Islands. Binance has historically been linked to illicit activity and is purportedly the subject of a current Department of Justice investigation.”



Binance did not immediately respond to a request for comment on the letter.&nbsp;



In addition to Binance, Lummis and Hill asked Garland to “expeditiously conclude [their] investigations into the ongoing illicit activities involving Tether.”



Reports of a <a href="https://blockworks.co/news/tether-remains-stable-amid-reports-of-doj-probe">criminal probe into Tether</a> surfaced in 2021. Damian Williams, who’s also involved in the case and trial of ex-FTX CEO Sam Bankman-Fried, was <a href="https://blockworks.co/news/tether-fraud-investigation-gets-new-leader-bloomberg">reportedly tapped to head the probe in October 2022</a>.



“There is simply no evidence that Tether has violated Sanctions laws or the Bank Secrecy Act through inadequate customer due diligence or screening practices,” Tether said in a <a href="https://tether.to/en/tether-reinforces-stance-against-cryptos-terrorist-utilization-urges-governments-to-fact-check-mainstream-medias-misinterpretation-of-data/">post</a> on Thursday.



“We urge the Department of Justice to carefully evaluate the extent to which Binance and Tether are providing material support and resources to support terrorism through violations of applicable sanctions laws and the Bank Secrecy Act,” Lummis and Hill wrote.



“To that end, we strongly support swift action by the Department of Justice against Binance and Tether to choke off sources of funding to the terrorists currently targeting Israel.”



Updated Oct. 26, 2023 at 2:49 pm ET: Added statement from Tether.



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Binance

Lummis, Hill push for ‘swift’ DOJ action against Binance, Tether 

Ben Strack

Congress’ latest proposed crypto bill would take away the “haphazard, schizophrenic” ways of regulators that have laid down enforcement on large industry players, according to US Rep. French Hill.



But the planned framework could have trouble passing anytime soon, some said.&nbsp;



The Republican congressman from Arkansas noted in an interview shown at the DACFP Vision conference in Austin, Texas on Tuesday that passage of crypto regulation is “a heavy lift,” as reactions from fellow policymakers are mixed.&nbsp;



Hill, vice chair of the House Financial Services Committee and chair of the subcommittee on digital assets, financial technology and inclusion, said during <a href="https://blockworks.co/news/house-grapples-with-stablecoins">an April hearing on stablecoins</a> that the “turf war” between the SEC and the CFTC over crypto is “unhelpful” and “unsustainable.”



Since then, Reps. Patrick McHenry, R-N.C., and Glenn Thompson, R-Penn., earlier this month introduced what they called a <a href="https://blockworks.co/news/house-republicans-referee-cftc-sec">Digital Asset Market Structure draft</a>.&nbsp;



The <a href="https://docs.house.gov/meetings/AG/AG00/20230606/116051/HHRG-118-AG00-20230606-SD002.pdf">framework</a> seeks to give the CFTC jurisdiction over digital asset commodities — if certain conditions around decentralization and functionality are met — while allowing the SEC to make arguments for crypto assets it feels are securities.&nbsp;



It would also allow crypto platforms to register with the SEC as an alternative trading system, and with the CFTC as a digital commodity exchange.



Hill said Tuesday that education around the proposal, and the broader crypto space, will be critical. A number of “roundtables” have occurred in recent weeks, and the House Financial Services and Agriculture committees continue soliciting feedback on the draft.&nbsp;&nbsp;&nbsp;



“You’ll see that continue to advance over the next two, three or four weeks as we do more work on it,” Hill said. “This is not a partisan issue. This is a bipartisan issue.”



The bill’s focus on clearing up token classification comes after SEC Chair <a href="https://blockworks.co/news/regulatory-clarity-ethereum-gensler">Gary Gensler failed to give a clear answer</a> to McHenry’s question at a hearing in April on whether ether was a security or a commodity.&nbsp;



Gensler has been “a bit of an impediment” in terms of having “a reasonable conversation” around crypto as the proposed bill was drawn up over the last three or four months, Hill said.



The SEC <a href="https://blockworks.co/news/sec-sues-coinbase">claimed Coinbase was operating as an unregistered exchange</a> and alleges Binance <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges">engaged in the unlawful sale of securities</a>, among other charges. The regulator <a href="https://blockworks.co/news/the-sec-says-these-crypto-assets-are-securities-their-reasoning-is-wrong">labeled more tokens as securities</a> as part of the two lawsuits.



“Our market structure bill would clear up, I don’t want to say 100% of these issues or challenges in and around all this…but it’s going to clear up the vast majority of the assertions of what Mr. Gensler and others are saying is not being done to whatever standard,” Hill said.



<h2 class="wp-block-heading">Chances of passing?</h2>



Lee Bratcher, president of the Texas Blockchain Council, said during a panel at the DACFP Vision conference that though he supports the McHenry-Thompson proposal, he doesn’t think there is enough “political capital” in the Senate to get it passed.



“I think [the Republicans] are optimistic publicly because they want to be seen as the innovators,” he said. “I think privately, if you asked them, they know that this is going to run into some problems in the Senate.”



Julian Sevillano, a digital assets-focused partner at consulting firm McKinsey &amp; Company who touted the bill’s “fundamental building blocks” during a separate panel, also doesn’t expect passage anytime soon.&nbsp;



“What we’ve heard in the industry is we don’t think any significant crypto regulation will pass because it’s not a priority within the year we have right now,” he said. “It’s an election cycle.”



The bill doesn’t have Democratic sponsorship yet, Sevillano added.&nbsp;



Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., have their own crypto-focused proposal <a href="https://blockworks.co/news/gillibrand-lummis-revamped-crypto-bill">they had planned to reintroduce</a>: the Responsible Financial Innovation Act.&nbsp;



“We met with them obviously and they are glad to see the intensive work we’re doing in the House on drafting [a bill] and the concepts we’re spelling out that may assist them with what they’re doing,” Hill said. “We look forward to hearing their best ideas in the Senate on the approach they might take.”



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Proposed crypto bill would help clear up latest SEC allegations: Rep. Hill

A draft of the long-awaited bipartisan stablecoin legislation Congress members have been promising hit the wire last week, but top Democrats say the bill is nothing like what was discussed.&nbsp;



House Representatives <a href="https://blockworks.co/news/house-grapples-with-stablecoins">met last week to discuss stablecoins</a> and hear from expert witnesses about their role, safety and stability. The current <a href="https://docs.house.gov/meetings/BA/BA21/20230419/115753/BILLS-118pih-Toproviderequirementsforpaymentstablecoinissuersresearchonadigitaldollarandforotherpurposes.pdf" target="_blank" rel="noreferrer noopener">draft bill</a> was released by Republicans on the Subcommittee on Digital Assets ahead of the hearing. 



Subcommittee Chair Rep. French Hill (R-Ark.) hailed the legislation as a bipartisan effort that began last fall.&nbsp;



But Democrats beg to differ. The draft “in no way recommends the final work on stablecoins by negotiations between the two of us,” Rep. Maxine Waters (D-Cali.) said, referring to unresolved conversations with Hill. Democrats will have to “start from scratch,” she added.&nbsp;



Hill responded by saying he welcomes collaboration on the bill and stablecoin framework.



As the hearing progressed, the party lines became more clear. Here is a rundown on where leaders stand when it comes to collaboration on stablecoin policy.&nbsp;



<h2 class="wp-block-heading">Where cross aisle agreement can be found&nbsp;</h2>



Several Subcommittee members brought up the collapse of <a href="https://blockworks.co/tag/terra" target="_blank" rel="noreferrer noopener">TerraUSD</a> and <a href="https://blockworks.co/tag/luna" target="_blank" rel="noreferrer noopener">Luna</a> and highlighted the need to protect investors and enforce strict reserve reporting requirements. 



Customer funds should also not be commingled, Republicans and Democrats agreed unequivocally.&nbsp;



There also seems to be some bipartisan agreement that US Dollar dominance should not be undermined, by a stablecoin or otherwise, although there is some disagreement about how stablecoins may impact USD.&nbsp;



House Republicans and Democrats may not agree on how to get there, but both sides of the aisle are calling for some sort of policy to make it through soon.&nbsp;



<h2 class="wp-block-heading">Where party lines remain strong&nbsp;</h2>



Some Democrats maintain the need for more guidelines around who can issue stablecoins.&nbsp;



&#8220;These programs are typically limited to banks who are heavily regulated and that is for good reason,&#8221; Rep. Stephen Lynch (D-Mass.) said. &#8220;It is the danger of allowing shadow banking products, particularly stablecoins, to issue deposits like products without FDIC insurance. So I strongly believe we need to separate crypto assets from our banking system, and this [draft] bill does just the opposite.&#8221;



Others in the party, like Rep. Ritchie Torres (D-NY), counter that stablecoin issuers are nothing like banks; if there are no lending services provided, there is no need to require issuers to be licensed banks.&nbsp;



Lawmakers also disagreed about privacy and KYC policies around stablecoins. Rep. Bill Foster (D-Illi.) suggested regulators would need access to each wallet owner’s identity in order to effectively oversee the industry.&nbsp;



Rep. Warren Davidson (R-Ohio) on the other hand, said private and permissionless blockchains are essential.&nbsp;



Congress members also had a difficult time getting on the same page about state versus federal policy. Rep. Torres said he would not be inclined to support any legislation that undermined New York’s current stablecoin regulatory policy.



<h2 class="wp-block-heading">What’s next</h2>



Bipartisan talks between current Chairman of the House Financial Services Committee Patrick McHenry (R-NC), and Rep. Waters began last year, but the two were unable to move their efforts out of committee.&nbsp;



Any bill will ultimately have to get through the Senate as well, and if Senate Banking Committee Chair Sherrod Brown (D-Ohio), doesn’t take interest, the legislation will likely die.&nbsp;



Crypto investment vehicles are “speculative products run by reckless companies — we know that’s true,” Sen. Brown said <a href="https://blockworks.co/news/senate-banking-hearing-on-crypto-crash">during a February hearing after the fallout of FTX</a>.&nbsp;&nbsp;



“It would require, certainly, a change in approach for the Banking Committee to move forward with markup,” Sen. Cynthia Lummis (R-Wyo.) said, <a href="https://blockworks.co/news/gillibrand-lummis-revamped-crypto-bill">during an appearance in DC to discuss her bipartisan crypto bill</a>.&nbsp;



Rep. Waters has not yet released her own draft or proposal for a new stablecoin bill to counter what Republicans unveiled last week. The draft bill has also not yet been introduced on the House floor.



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