Michael McSweeney

I’ve seen some garbage opinions out there recently about Kevin McCarthy’s expulsion from office as speaker of the US House of Representatives and how this might be a good thing for crypto.&nbsp;



Much, I think, is being made of nothing.&nbsp;



First, there’s the erroneous notion that the ascent of Patrick McHenry (R-NC) as speaker pro tempore is somehow a boon because of McHenry’s “crypto-friendly” posture. 



To be clear: McHenry’s sole function is to conduct the election for the next speaker of the house. That’s it. He’s basically there to hold out the hat as people drop their votes in — nothing to do with crypto.&nbsp;



Here’s the truth as I see it. No political game of musical chairs is going to fundamentally revise the prevailing regulatory narrative around crypto. Certainly not the exit of a politician known better for his fundraising acumen rather than his ability to wield real power.&nbsp;



As far as I can tell, McHenry <a href="https://blockworks.co/news/kevin-mccarthy-ousted-house-speaker" target="_blank" rel="noreferrer noopener">isn’t joining the race</a> for the full promotion. That’s likely because two other House heavyweights — Steve Scalise (R-La.) and Jim Jordan (R-OH) — have absorbed just about all the available competitive oxygen. 



Maybe something crazy happens, Scalise and Jordan go down in flames, and McHenry steps up to fill the void. But I just don’t see it happening.&nbsp;



Tom Emmer (R-MN) was the other House Republican raised as a preferred replacement in the wake of McCarthy’s exile. Indeed, Emmer was floated via a far-right whisper campaign picked up by the Washington Post in a Sept. 28 report. 



But this never made much sense to begin with. Emmer supported McCarthy, voted to keep him in office, and, oh, he’s already backing Scalise. So much for that.



Barring any unforeseen madness — and yeah, there’s no shortage of that in Congress these days — either Scalise or Jordan will be the next speaker of the House. I think the race will go to Jordan, thanks in part to <a href="https://www.politico.com/news/2023/10/06/trump-jim-jordan-house-speaker-endorsements-00120320">a Friday endorsement</a> by former US president and current courtroom resident Donald Trump. Jordan’s deep connection to the agenda-setting right wing of the GOP and grenade-throwing tendencies, however accurate or inaccurate, makes him an ideal candidate in today’s political moment.&nbsp;



Jordan, it bears mentioning, hasn’t taken any kind of crypto position.&nbsp;



So, where does McCarthy&#8217;s expulsion leave crypto more broadly? Some crypto commentators will continue to grasp for straws in an attempt to frame events around some kind of positive or negative narrative for the industry. More importantly, things will carry on as they have: shaped by the failure of FTX and the ever-growing legal and regulatory pressures surrounding Binance. 



The McCarthy-exit-will-help-us mentality has less to do with tangible reality and more to do with the tendency among some in the crypto “space” to project their desires, biases and theses on the aforementioned reality. Crypto advocates want Congress to help them out of their economic and perceptual dilemmas, so any major change — and yes, McCarthy’s defeat is a big deal — will be perceived as some kind of opportunity or moment of deliverance.&nbsp;



Read more from our op-ed section: <a href="https://blockworks.co/news/2024-presidential-election-crypto" target="_blank" rel="noreferrer noopener">Need an edge in the 2024 presidential election? Look to crypto.</a>



Despite how the business community and lobby apparatus might otherwise feel, crypto is…really small. Congress faces a feast of problems, like paying for the government to run, so addressing things like the tax status of cryptocurrency is, well, probably not super-high on the agenda.&nbsp;&nbsp;



But I digress. Looking ahead, I predict that the basic calculus will stay the same.&nbsp;



Cannibalism and Trump-worship will remain the preferred Republican political strategies. Democrats will keep fundraising. The Senate will creak along, as will President Joe Biden. There’s a decent chance the government shuts down this fall, though a proposed bill to effectively end the risk of government funding cliffs might curtail that possibility.&nbsp;



Okay, sure, those are some pretty low-risk predictions. But what about crypto policy?&nbsp;



I think policy changes will inch along, as they have, as part of the broader appropriations process. This is a strategy advanced by lawmakers like Darren Soto (D-FL), given that the essential bipartisan fashion of these processes (well, normally) is conducive for finding common ground on thorny issues. 



Policymaking efforts — like those focused on stablecoins, exchange rules, etc. — will succeed not through media-savvy political wars but the slow, collaborative processes that reflect the way Congress should operate. Maybe the industry will like the outcomes. Maybe they won’t. They’re <a href="https://www.reuters.com/business/finance/us-crypto-industry-comes-washington-faces-uphill-struggle-2023-09-27/">certainly out there trying</a>.&nbsp;



But Kevin McCarthy’s tortuous downfall changes absolutely nothing.&nbsp;



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<div class="wp-block-post-author-biography">Michael McSweeney has worked in crypto media since 2014, including editorships at CoinDesk and The Block. In his spare time, he writes fiction and plays disc golf. Contact Michael at michael.mcsweeney@blockworks.co.</div>


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Kevin McCarthy ousted! And it means nothing for crypto

Katherine Ross

Casey Wagner

Kevin McCarthy was ousted as house speaker in a vote held by the House of Representatives on Tuesday. 



The historic outcome marks the first time a vote was successful in ousting the current speaker. Rep. Matt Gaetz filed a motion to vacate in order to strip McCarthy of the post. 



McCarthy is a crypto-friendly Republican, he’s previously admitted that he likes bitcoin and supports the decentralization aspect for cryptocurrencies. Back in 2019 — prior to the collapse of <a href="https://blockworks.co/tag/ftx">FTX</a> and lenders such as Celsius and BlockFi — he praised blockchain’s ability to revolutionize the security of the financial industry.



In his place, Rep. Patrick <a href="https://blockworks.co/tag/patrick-mchenry">McHenry</a> is to become speaker pro tempore. McHenry also has a past of being crypto-friendly, while also chairing committees overseeing digital asset bills.



Back in July, McHenry said that politicians on the Hill were going to take a “historic step for American innovation and consumer protection as we undertake the first ever legislative markup of digital asset legislation.”



He also has <a href="https://blockworks.co/news/mchenry-support-grayscale-sec">signaled support for the Grayscale ruling</a>, as well as questioning the timing of the <a href="https://blockworks.co/news/mchenry-sec-prometheum">special purpose broker-dealer approval that Prometheum received</a>.



Back in July, at the makeup session of the stablecoin bill McHenry said, ​​“I had hoped to announce an agreement with the ranking member on stablecoins legislation.” “This will not be the case. […] It was the White House’s unwillingness to compromise that has once again brought that negotiation to a halt.”



The markup was packed with drama, as it devolved into a shouting match, <a href="https://blockworks.co/news/house-stablecoin-markup">as previously reported by Blockworks</a>.&nbsp;



The official replacement of McCarthy remains unknown, with the House needing to elect a new speaker. Gaetz has publicly spoken in favor of House Majority Whip Tom Emmer.



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McCarthy ousted, crypto-friendly McHenry to become speaker pro tempore

James Cirrone

Rep. Patrick McHenry, R-N.C., weighed in on Grayscale’s court victory against the US Securities and Exchange Commission over its application for a bitcoin ETF.



McHenry is also Chair of the House Financial Services Committee and in that role, he’s introduced legislation to regulate crypto. That includes a stablecoin bill that made it out of committee in July with bipartisan support. 



McHenry name dropped the Financial Innovation and Technology for the 21st Century Act in a Tuesday X post, which if passed, would begin to <a href="https://blockworks.co/news/republicans-landmark-crypto-bill-clears-2-house-committees">delineate the responsibilities of the SEC and CFTC when it comes to regulating crypto</a>. That bill has cleared two House committees so far.



Read more: <a href="https://blockworks.co/news/stablecoin-bill-bipartisan-support">Heated 7-hour markup ends in bipartisan support for stablecoin bill</a>



Referencing the Grayscale case, McHenry wrote that SEC chair Gary Gensler’s “crusade against the digital asset ecosystem is falling apart under scrutiny from the courts.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">SEC Chair <a href="https://twitter.com/GaryGensler?ref_src=twsrc%5Etfw">@GaryGensler</a>&#39;s crusade against the digital asset ecosystem is falling apart under scrutiny from the courts. This is yet another example of why a comprehensive regulatory framework, like the FIT for the 21st Century Act, must be made law.<a href="https://t.co/HI3wkFAsMm">https://t.co/HI3wkFAsMm</a>&mdash; Patrick McHenry (@PatrickMcHenry) <a href="https://twitter.com/PatrickMcHenry/status/1696570671160062416?ref_src=twsrc%5Etfw">August 29, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Rep. Warren Davidson, R-Ohio, was a bit more forceful in his rebuke of the SEC, <a href="https://blockworks.co/news/republicans-oust-gensler-bill">reiterating his call to fire Gensler</a>.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">More evidence that Gary Gensler’s actions at the SEC are arbitrary and capricious. <a href="https://twitter.com/hashtag/FireGaryGensler?src=hash&amp;ref_src=twsrc%5Etfw">#FireGaryGensler</a> <a href="https://t.co/1qYVnki8ja">https://t.co/1qYVnki8ja</a> <a href="https://t.co/IG2t6i9V40">pic.twitter.com/IG2t6i9V40</a>&mdash; Warren Davidson 🇺🇸 (@WarrenDavidson) <a href="https://twitter.com/WarrenDavidson/status/1696610534580249011?ref_src=twsrc%5Etfw">August 29, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Former Senator Pat Toomey, who left office in January 2023, was also chimed in with support for the Grayscale decision. 



The court, he <a href="https://twitter.com/SenToomey/status/1696596576892829806">wrote</a>, “upheld the rule of law and properly served American consumers by vacating the ‘arbitrary and capricious’ decision of the SEC denying Grayscale’s application to convert its Bitcoin Trust to an ETF. 



<a href="https://blockworks.co/news/grayscale-sues-sec-over-rejection-of-proposed-spot-bitcoin-etf">Grayscale sued the SEC in June 2022</a> for rejecting the crypto asset manager’s proposal to transition its Bitcoin Trust (GBTC) into an ETF. As part of that suit, it issued a <a href="https://www.docdroid.net/73OjnW4/dc-circuit-petition-for-review-as-filed-pdf">petition for review</a>, asking the court to look over the SEC’s decision.



A three-judge panel for the DC Circuit Court of Appeals granted Grayscale’s petition for review Tuesday, while also ordering that the SEC’s “order be vacated.”&nbsp;



This ruling <a href="https://blockworks.co/news/judges-grayscale-sec-ruling">doesn’t mean that Grayscale is guaranteed to convert GBTC into a spot bitcoin ETF</a>. It simply means that the SEC ​​must review Grayscale’s application to do so.



Coinbase chief legal officer Paul Grewal also weighed in on Tuesday’s decision, saying that courts are crypto’s “last, best hope.”



“I’ll say it again — they are not perfect but when it comes to protecting the rule of law, the courts remain our last, best hope,” Grewal wrote.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">3-0. Judge Rao writing for the panel. I’ll say it again— they are not perfect but when it comes to protecting the rule of law, the courts remain our last, best hope . <a href="https://t.co/pV21BM317w">https://t.co/pV21BM317w</a>&mdash; paulgrewal.eth (@iampaulgrewal) <a href="https://twitter.com/iampaulgrewal/status/1696550743292141590?ref_src=twsrc%5Etfw">August 29, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



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McHenry signals support for Grayscale ruling

A group of Republican members of the House Financial Services Committee has accused the US Federal Reserve of undermining efforts to develop federal rules for stablecoins.



Chair Patrick McHenry, R-N.C., penned a letter to Federal Reserve Chair Jerome Powell that argued the Fed’s recent oversight expansion into crypto-related activities at banks could impede regulatory progress.&nbsp;



The letter comes after <a href="https://blockworks.co/tag/fed">the Fed</a> announced new programs on Aug. 8 with the goal of enhancing oversight into <a href="https://blockworks.co/news/federal-reserve-crypto-oversight">crypto-related activities at American banks</a>, including state member banks.



The Fed aims to “enhance the supervision of novel activities” such as “crypto-asset custody, crypto-collateralized lending, facilitating crypto-asset trading, and engaging in stablecoin/dollar token issuance or distribution” in its program outline.



“If these letters are left in place, they will undoubtedly deter financial institutions from participating in the digital asset ecosystem,” McHenry and a few other members said in a letter dated Aug. 23.



Reps. French Hill, R-Ark., and Bull Huizenga, R-Mich., also signed the letter.



Congress should be the one to implement the framework, the letter’s authors contended, because they can “provide certainty for market participants.”



“Furthermore, the Novel Activities Supervision Program created under SR 23-7 appears designed to impose additional regulatory burdens on banking institutions to engage with crypto-assets and to provide the Fed with additional tools to deny crypto-asset related activities,” McHenry wrote.



As Blockworks previously reported, Congress may be <a href="https://blockworks.co/news/fed-new-crypto-rules-congress-overrule">able to overrule the Fed’s program</a> if the bill continues to advance. So far, the measure has advanced through the House Financial Services Committee.



Committee Democrats <a href="https://blockworks.co/news/stablecoin-bill-bipartisan-support">voiced objections to the bill</a> during a heated debate earlier this summer.



McHenry asked the Fed to provide answers to a handful of questions about its evaluation process and how it plans to approach state bank proposals.



Through the program, state member banks are required to receive written approval from the Fed before they use distributed ledger technology (<a href="https://blockworks.co/tag/dlt">DLT</a>) or “similar technologies to conduct payments activities as principal, including by issuing, holding, or transacting in dollar tokens.”



The Fed was also asked to provide materials and records used to prepare the program ahead of its Aug. 8 release. Powell has until Sept. 29 to answer McHenry, per the letter.



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House Republicans ‘express concern’ over the Fed’s new crypto oversight program

Patrick McHenry R-N.C., Chair of the House Financial Services Committee, along with other members of Congress, sent letters to Robert Cook, CEO of the Financial Industry Regulatory Authority (FINRA) and US Security and Exchange Commission chair Gary Gensler on Tuesday.



McHenry asked Cook and Gensler to break down how Prometheum was approved as a special purpose broker-dealer. They also questioned the ties that Prometheum reportedly has to the Chinese Communist Party.



Legislators also <a href="https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=408950">asked</a> about the timing of the approval, saying that it “raises concerns that it was aimed at demonstrating that legislation is not needed because there is a workable regulatory framework for the custody of digital asset securities.”



Prometheum was granted approval on May 17 of this year, and legislation was released on June 2.&nbsp;&nbsp;



In the letter to Cook, they asked <a href="https://blockworks.co/tag/finra">FINRA</a> to supply a briefing to the House Financial Services Committee by Aug. 22, though they’d appreciate a response as soon as possible.



In the <a href="https://financialservices.house.gov/uploadedfiles/2023-08-09__fsc_gop_letter_to_finra_re_prometheum.pdf">letter</a>, the Committee asked for the number of special purpose broker-dealer applications, how many applications have been denied, and what risks were assessed prior to approving Prometheum.&nbsp;



Additionally, politicians asked for documentation related to the application, and communications both within FINRA and with the <a href="https://blockworks.co/tag/sec">SEC</a> on the applications.



While the letter to the SEC did not include the same questions as McHenry posed to FINRA, it did request documents and communications related to the application.



“In fact, you have touted the Prometheum approval multiple times in public statements to support your position that digital asset firms can comply with the existing regulatory framework,” Committee members <a href="https://financialservices.house.gov/uploadedfiles/2023-08-09_fsc_gop_letter_to_sec_re_prometheum.pdf">wrote</a> to <a href="https://blockworks.co/tag/gary-gensler">Gensler</a>.&nbsp;



During his testimony to the Committee earlier this year, Aaron Kaplan, CEO of Prometheum, stated that 20% of his company is owned by Shanghai Wanxiang Blockchain Inc and that “according to SEC filings, a representative of that entity, Feng Ziao, serves as a director in Prometheum.”



Prometheum and Wanxiang entered into a 2018 agreement to develop blockchain trading software, but the agreement was later terminated. 



“Prometheum’s former relationships with Wanxiang and its affiliates have been reviewed by the SEC, which closed its investigation, and CFIUS, which never opened up a formal investigation,” Prometheum said in an emailed statement to Blockworks.



“Prometheum purpose-built its technology with the goal to develop a market infrastructure for digital asset securities that is compliant with the federal securities laws. This technology will serve as a building block for a compliant and orderly digital asset securities marketplace that protects investors and serves their best interests.”



McHenry isn’t the only one concerned with the Prometheum approval. In July, Representative Ritchie Torres D-N.Y. <a href="https://blockworks.co/news/ritchie-torres-prometheum-letter">asked the SEC</a> to open an investigation into how the company — which “has not yet served a single customer” according to McHenry’s letters — was granted a license.



The <a href="https://blockworks.co/tag/blockchain-association">Blockchain Association</a> has also <a href="https://blockworks.co/news/prometheum-sec-broker-dealer-investigation">expressed its concern</a> over the alleged “sweetheart” deal between Prometheum and the SEC.



Updated Tuesday, August 15 at 5:20 pm ET: Added statement from Prometheum



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McHenry questions timing of Prometheum’s special purpose broker-dealer approval

A markup hearing in the House Financial Services Committee escalated to a full-blown clash over proposed stablecoin legislation between representatives Thursday morning.&nbsp;



After concluding a markup hearing Wednesday, committee members <a href="https://www.youtube.com/watch?v=FGjvuDjXiq0">gathered</a> again Thursday to consider six newly introduced bills. Legislators agreed that the main focus of the markup would be on the Clarity for Payment Stablecoins Act of 2023, introduced last week by Committee Chair Patrick McHenry, R-N.C., but party lines prevented any cooperation across the aisle.&nbsp;



Tensions were high to begin with, as Democrats made their dissatisfaction with the agenda clear.&nbsp;



“Today this committee is being forced by the extreme [“make America great again”] wing of the Republican party to address a trove of anti-ESG, anti-investor and wholly anti-capitalist bills,” ranking member Rep. Maxine Waters, D-Cali., said in her opening statement.&nbsp;



The committee room immediately reacted, with many people present shouting and expressing their outrage at Waters’ comments.&nbsp;



The chaos seems to stem from a bipartisan agreement that fell apart at the eleventh hour thanks to interference from the White House, according to McHenry.&nbsp;



​​“Today I had hoped to announce an agreement with the ranking member on stablecoins legislation,” McHenry said. “This will not be the case…It was the White House’s unwillingness to compromise that has once again brought that negotiation to a halt.”



White House director of the National Economic Council Lael Brainard raised concerns at the last minute about the bill and <a href="https://blockworks.co/news/house-stablecoin-crypto-offshore">the lack of oversight the Federal Reserve has over state-regulated non-bank issuers</a>, according to a person familiar with the matter. The White House then asked Rep. Waters to attempt to delay negotiations, the source alleged.&nbsp;



<a href="https://blockworks.co/news/waters-floats-stablecoin-bill">Waters</a> proposed a vote to the committee asking the stablecoin bill not be considered, but she was overruled by Republicans. Committee Democrats then accused Republican members of trying to push the legislation through too quickly, not allowing Democrats the time to draft and propose amendments.&nbsp;



“We have had no meaningful opportunity to amend this bill and now we are being asked to do it on the fly,” Rep. Stephen Lynch, D-Mass., said in a raised voice. “The problem is this: Going forward now, we are being denied, in the minority, we don’t expect to win our amendments… but we do want to be heard.”&nbsp;



McHenry countered: He said the process is being appropriately followed, resulting in an extended debate over the procedure of the committee. McHenry requested his colleagues “lower the decibels” in the committee room. 



“There are a number of [Democrats] who support [this] bill and a full bipartisan agreement fell through at the 23rd hour due to White House concerns with lack of [Federal Reserve] oversight over state and non-bank issuers,” Cody Carbone, vice president of policy at the Digital Chamber of Commerce, said on <a href="https://twitter.com/CodyCarboneDC/status/1684574445900558336?s=20">Twitter</a> Thursday. “We’re confident this bipartisan bill still moves forward.”



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‘Lower the decibels’: House committee stablecoin markup devolves into shouting match

The North Carolina House has successfully passed a bill to initiate a study regarding the potential inclusion of cryptocurrencies within the state treasury.



The bill, House Bill 721, advanced to the Senate Thursday after passing the House with 73 votes in favor and 40 votes against on Wednesday, according to the North Carolina <a href="https://www.ncleg.gov/BillLookUp/2023/H721">General Assembly</a>.&nbsp;



The bill specifically tasks the North Carolina State Treasury Department with conducting an investigation into the acquisition, storage, and utilization of investments involving metal bullion and virtual currencies such as bitcoin.



If passed, the Treasury must consider how investments in virtual currencies could be used “to hedge against inflation and systemic credit risks, reduce overall portfolio volatility, and increase portfolio returns over time,” the <a href="https://lrs.sog.unc.edu/bill-summaries-lookup/H/721/2023-2024%20Session/H721">bill</a> states.&nbsp;



The first version of the bill only focused on metal bullion, but House members elected to add in virtual currencies during the mark-up process. Earlier this month, the House unanimously passed an amendment to the bill to include crypto asset custody as part of the study.&nbsp;



Dan Spuller, head of industry affairs at the Blockchain Association, testified before state legislators in North Carolina as they considered the amendment. North Carolina has become a federal leader in advancing national blockchain policy, and state laws should match appropriately, Spuller said on <a href="https://twitter.com/DanSpuller/status/1669335067552886784?s=20">Twitter</a> about the bill.&nbsp;



In Congress, Rep. Patrick McHenry, a Republican from North Carolina and head of the House Financial Services Committee, has made advancing crypto policy a priority this session. Most recently, McHenry has <a href="https://blockworks.co/news/political-animal-taking-shape">co-sponsored the Market Structure Bill discussion draft</a>, an effort to give the CFTC more authority in overseeing crypto markets.&nbsp;



On the state level, North Carolina is not the only state interested in potentially advancing the role of digital assets. Lawmakers in Colorado legalized crypto tax payments last year, although the <a href="https://blockworks.co/news/colorado-state-income-taxes-crypto">program has yet to gain widespread popularity</a>.



New York and Wyoming have also become leaders in crypto regulation. New York’s BitLicense program is expected to become the model for other states looking to regulate exchanges and brokers, and the system may influence federal policy. Wyoming’s crypto-friendly banking charter, the first of its kind, has brought more firms to the state, although the <a href="https://blockworks.co/news/wyoming-gov-stablecoin-commission">banks still face challenges on the federal level</a>.



North Carolina’s state legislative session adjourns at the end of August, so senators will have to act quickly if they want this bill to make it to the governor’s desk before then.



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North Carolina closer to holding crypto on its balance sheet

House Financial Services Committee Republicans has asked the SEC to rescind its proposed rule to change the definition of “exchange.” 



In a letter sent to the securities regulator Tuesday ahead of the committee’s crypto-focused hearing, Republicans argued the proposed rule exceeds “statutory authority” granted to the SEC. 



“The Proposed Rule will stifle innovation and harm digital asset market participants and the U.S. economy more broadly,” committee Republicans said in the <a href="https://financialservices.house.gov/uploadedfiles/fsc_gop_letter_on_the_secs_proposed_definition_of_an_exchange_final.pdf">letter</a>.



In January 2022, the SEC <a href="https://www.sec.gov/news/press-release/2022-10">proposed</a> an amendment that would include “Communication Protocol Systems” within the agency’s definition of an exchange, meaning these entities would have to register as such. In response to public feedback, the SEC reopened the comment period for the proposal in May 2022, and again reopened the window in April 2023. 



“The reopening release reiterated the applicability of existing rules to platforms that trade crypto asset securities, including so-called ‘DeFi’ systems, and provides supplemental information and economic analysis for systems that would be included in the new, proposed exchange definition,” the SEC said in April when it reopened the comment period for the second time.&nbsp;



Crypto industry members and advocates have <a href="https://blockworks.co/news/sec-withdraw-definitions-proposal-paradigm">expressed concern with the proposed definition change</a>, arguing that the rule goes beyond the SEC’s powers, as defined in the Administrative Procedure Act (APA).



“We write to request that the Commission withdraw its proposed redefinition of ‘exchange’ and begin its consideration of how to adapt its regulations in the DeFi context anew — after rigorous economic analysis, genuine, broad engagement with the industry, and a close look at the limits of its statutory jurisdiction,” crypto investment firm Paradigm <a href="https://policy.paradigm.xyz/assets/writing/SEC-3b-16-Comment.pdf">wrote</a> to the SEC earlier this month.



The Blockchain Association, a lobbying group dedicated to advancing crypto-friendly policy, also released a <a href="https://theblockchainassociation.org/blockchainassociation-submits-additional-comments-to-sec-in-response-to-proposed-rulemaking-to-amend-the-definition-of-exchange/">statement</a> Tuesday, arguing that the SEC is going beyond its jurisdictional powers by attempting to expand the definition so broadly. 



House Republicans expressed similar concerns in their comment Tuesday.&nbsp;



“In the supplemental information provided by the Commission, the SEC estimates that &#8216;an additional 15-20&#8217; systems trading digital assets would be designated as an exchange,” the letter stated. “However, given the breadth of the new definition, the Proposed Rule would have a much broader impact than what is accounted for in the proposal.” 



The deadline to submit comments for this newly reopened period is Tuesday, June 13, according to the SEC’s <a href="https://www.federalregister.gov/documents/2023/05/05/2023-08544/supplemental-information-and-reopening-of-comment-period-for-amendments-regarding-the-definition-of">filing</a> on the Federal Register.



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House Republicans push back on SEC proposal to alter exchange definition

The House Committee on Agriculture Subcommittee on Commodity Markets, Digital Assets and Rural Development gathered Thursday to discuss “regulatory gaps” in cryptocurrency spot market regulation.&nbsp;



The conversation revolved around token classification: Are cryptocurrencies securities or commodities? Both sides of the aisle expressed interest in making the passage of a comprehensive legislative framework a priority.



Subcommittee Chair Dusty Johnson, R-S.D., kicked off the conversation by emphasizing the need for innovation; we need to ensure “the next Ethereum” is able to emerge, he said. Johnson added that bipartisan cooperation is key, and the CFTC, SEC and state banking regulators also need to be a part of the conversation around spot market policy.



Hearing witness former CFTC Chair Timothy Massad used his prepared <a href="https://docs.house.gov/meetings/AG/AG22/20230427/115803/HHRG-118-AG22-Wstate-MassadT-20230427.pdf">testimony</a> to advocate for what he called an “alternative approach” to the crypto token classification issue: Congress should direct the SEC and CFTC to “develop joint rules” to determine what constitutes both commodities and securities.&nbsp;



The SEC’s current regulation-by-enforcement strategy is time consuming and inadequate; court case precedent is not enough clarity, Massad added.&nbsp;



While crypto fans can certainly get behind this opinion, Massad cannot answer one burning question from the industry: Is ether a security or a commodity?



“I don’t have enough information,” Massad said in response to the question posed by Rep. Zach Nunn, R-Iowa.&nbsp;



“The concern about ether…was in the Merge, where they changed the system of validating transactions, there seemed to be a foundation, a group of people involved in that…is that, under the Howey test, a common enterprise?,” Massad added.&nbsp;



It’s the same query <a href="https://blockworks.co/news/regulatory-clarity-ethereum-gensler">SEC Chair Gary Gensler himself could not answer</a> last week before the <a href="https://blockworks.co/news/gensler-house-financial-services-committee">House Finance Services Committee</a>. 



Rep. Warren Davidson, R-Ohio, asked <a href="https://blockworks.co/news/gary-gensler-crypto-holdings">Gensler</a> if ether was a security, “yes or no,” during last week’s hearing. Gensler started to answer, without a ‘yes’ or ‘no,’ and was cut off by Davidson.&nbsp;



The House Agriculture Committee and the House Financial Services Committee, chaired by crypto-friendly Patrick McHenry, R-N.C., are set to hold a joint hearing on digital assets next month, Johnson said.



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Former CFTC Chair Massad Also Can’t Say if ETH Is a Security

Michael Bodley

A trio of US House Republicans are on the offensive against federal cryptocurrency regulations efforts again, saying they are “demanding information related to potential coordinated efforts by the agencies to deny banking services to digital asset firms and the ecosystem as a whole.”



The broadside effort undertaken by Reps. Patrick McHenry, R-N.C.; Bill Huizenga, R-Mich.; and French Hill, R-Ark., marks one of the latest attempts at the US federal level to push for digital asset regulation this year. And it comes at a time when a growing number of prominent US-based crypto companies are <a href="https://blockworks.co/news/coinbase-abu-dhabi-bermuda-derivatives">establishing outposts overseas</a> — or going as far as saying they’ll move their headquarters outside of the US altogether.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><a href="https://twitter.com/hashtag/NEW?src=hash&amp;ref_src=twsrc%5Etfw">#NEW</a>: Chairmen <a href="https://twitter.com/PatrickMcHenry?ref_src=twsrc%5Etfw">@PatrickMcHenry</a>, <a href="https://twitter.com/RepFrenchHill?ref_src=twsrc%5Etfw">@RepFrenchHill</a>, and <a href="https://twitter.com/RepHuizenga?ref_src=twsrc%5Etfw">@RepHuizenga</a> are demanding information on prudential banking regulators&#39; efforts to de-bank the digital asset ecosystem. ⬇️ Read more on their letters 🔗 <a href="https://t.co/IjbxDEapzj">https://t.co/IjbxDEapzj</a> <a href="https://t.co/GInBcOCm90">pic.twitter.com/GInBcOCm90</a>&mdash; Financial Services GOP (@FinancialCmte) <a href="https://twitter.com/FinancialCmte/status/1651324120888377346?ref_src=twsrc%5Etfw">April 26, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



In a joint <a href="https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=408737">statement</a>, the US politicians referenced recent letters they sent to the Board of Governors of the Federal Reserve, as well as Federal Reserve Chair Jerome Powell; plus FDIC Chair Martin Gruenberg. Michael Hsu, who holds the title of acting comptroller of the currency in the US, also received a letter this week.



All of the coordinated communications appear to be the latest Republican attempt to ramp up pressure against US crypto oversees to get legislation done on industry oversight this year.&nbsp;&nbsp;



“Today, we are seeing the resurgence of coordinated action by the federal prudential regulators to suppress innovation in the United States,” the joint statement said. “There is no clearer example than in the digital asset ecosystem.”



Even Coinbase CEO Brian Armstrong has entered the political and regulatory fray this year. Armstrong at one point in 2023 said he’d consider moving the domicile of his US-based and publicly traded exchange outside of the country.&nbsp;



The <a href="https://blockworks.co/news/could-coinbase-leave-us">industry consensus has been mixed on</a> whether Armstrong would seriously consider doing so. Some have referred to the move as a political gambit. Efforts driven at the state level in the US, including legislation drafted in Montana, have been<a href="https://blockworks.co/news/montana-mining-bill-passes-house"> largely met with greater progress so far this year.</a>&nbsp;



<h2 class="wp-block-heading">Europe crypto industry moves in the cards?</h2>



Amid all of the US federal turmoil and congressional infighting, industry participants based in the US say they’re paying close attention to ongoing crypto regulatory developments in Europe and other regions this quarter.&nbsp;



It’s unclear whether Republican efforts to advance stablecoin legislation <a href="https://blockworks.co/news/republican-stablecoin-bill-wont-survive">have a chance of succeeding</a>, for example, this year.



During an interview with Blockworks on Thursday, Ilya Volkov, CEO and co-founder of YouHodler, noted a growing trend of influential figures in the industry looking to set up shop in his home base of Switzerland.&nbsp;



Volkov has been involved in efforts to shore up the presence of crypto firms in the EU via <a href="https://blockworks.co/tag/mica">MiCA</a>, the region’s ongoing effort to establish its own regulation and jurisdiction over digital asset operators.&nbsp;



Though Volkov’s firm has no presence in the US and no customers based in the region, he said, they’re still “monitoring the developments in the US, just because they’re much connected to everything happening on the global level, and it [has always been] like that.”



He said that crypto companies, such as stablecoin issuer Circle, have been recently exploring opportunities to expand their presence in Europe. 



He also mentioned Circle&#8217;s <a href="https://www.benzinga.com/markets/cryptocurrency/23/03/31440302/france-goes-crypto-friendly-as-stablecoin-giant-circle-sets-up-shop-in-paris">plans</a> to open a new office in Paris, which started circulating about a month ago. The firm’s representatives, Volkov said, started to consider paying a visit Zurich, Switzerland, a couple of weeks ago in an effort to keep “continuing some presence here” on the continent.



Update: May 1 at 12:13pm. Clarifies the timing of Circle&#8217;s plans to open an office in Paris, as well as the intention of the firm&#8217;s executives to visit Zurich, Switzerland. 



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As US House Efforts to Push Crypto Oversight Ramp Up, EU Move in Cards?

House Republicans have some work to do if they want their stablecoin bill to pass, Hill insiders say, but both parties seem inclined to leave the SEC out.&nbsp;



The current draft, which was revamped earlier this week, doesn’t have much chance of making it to the floor, people familiar with the matter said.&nbsp;



Democrats and Republicans appear to agree somewhat on keeping the SEC out of stablecoin regulation. Both the new draft bill and <a href="https://blockworks.co/news/republicans-democrats-stablecoins-policy">former draft based on bipartisan negotiations</a> have the Federal Reserve listed as the applicable regulator, according to Congressional documents obtained by Blockworks.&nbsp;



But, insiders added, House Financial Services Committee Chair Patrick McHenry, the current draft’s main champion, will be giving up his seat as chair at the end of next session, so he may prioritize pushing this legislation through the House. 



An additionally amended version, ideally with some bipartisan support, is more likely to get introduced this session. A bill only endorsed by Republicans has next to no chance of making it through the Senate, sources added.



House Republicans unveiled the first iteration of their stablecoin bill ahead of <a href="https://www.youtube.com/watch?v=ti0CDUxTAWI">last week’s subcommittee hearing</a>. The newest version, released Monday, gives state legislators more control over the asset class, presumably in response to comments made at the hearing.&nbsp;



Rep. Ritchie Torres, D-N.Y., said last week that he was unlikely to support any legislation that undermines the current stablecoin regulatory framework in New York. Hearing witness Adrienne A. Harris, superintendent of the New York State Department of Financial Services, highlighted advantages in allowing states to be more proactive in their approach.&nbsp;



“Federal regulators are able to comprehensively address macroprudential considerations and establish foundational consumer and market protections,” Harris said. “[States can] act more nimbly to respond to industry developments and support responsible innovation given their ability to modernize regulations more quickly and leverage their more immediate understanding of consumer needs.”



Industry members and House Republicans are expecting a Democratic bill to drop soon, based on comments from Rep. Maxine Waters, D-Cali., at <a href="https://blockworks.co/news/house-grapples-with-stablecoins">last week’s hearing</a>.



The Republicans’ draft “in no way recommends the final work on stablecoins by negotiations between the two of us,” Waters said, referring to unresolved conversations with Hill. Democrats will have to “start from scratch,” she added.&nbsp;&nbsp;



Neither Waters nor other committee Democrats have provided clarity on when an opposing bill may be introduced, or if one is even in the works. The party has also not yet publicly commented on the Republican’s new version of the bill.&nbsp;



If a Democratic stablecoin bill does make it to the floor, it is likely to focus on issuer requirements; Democrats have largely maintained a view that issuers should be federally insured depository institutions. Clauses requiring stablecoin issuers and/or distributors to maintain some sort of know-your-customer and anti-money laundering standards can also be expected.&nbsp;



Representatives from Waters’ office did not respond to Blockworks’ repeated requests for comment.



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Republican Stablecoin Bill Draft Likely Won’t Make It to the Floor, Insiders Say

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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Stablecoin Policy Progress Impeded by Partisan Disagreements

Sebastian Sinclair

The SEC is facing pressure from the House Committee on Financial Services to produce documents related to recent charges filed against former FTX CEO Sam Bankman-Fried.



Committee and subcommittee chairs Patrick McHenry and Bill Huizenga sent a letter Tuesday expressing dissatisfaction with the agency’s response to their document request on Feb. 10.



In the <a href="https://financialservices.house.gov/uploadedfiles/pmc_bh_to_sec_re_failure_to_produce_sbf_charges_final.pdf" target="_blank" rel="noreferrer noopener">letter</a>, McHenry and Huizenga criticized SEC Chair Gary Gensler for his “insufficient” commitment to comply with the committee’s document requests.



McHenry and Huizenga argue by failing to turn over the documents, the SEC has prevented their staff from discussing the request with anyone inside the agency’s Office of the General Counsel, even after missing the previous deadline.



In February, the committee <a href="https://financialservices.house.gov/uploadedfiles/2023-02-10_mchenry_huizenga_letter_to_sec_on_sbf_charges_final.pdf" target="_blank" rel="noreferrer noopener">requested all records</a> and communications between and among employees within the SEC’s Division of Enforcement and the Office of the Chair, as well as records between the agency and the Department of Justice.



Those documents center on charges filed against Bankman-Fried for his alleged role in “concealing his diversion of FTX customers’ funds to crypto trading firm Alameda Research, while raising more than $1.8 billion from investors on Nov. 2 to Feb. 9.”



“On March 15, 2023, your staff provided a staff-level briefing on the SEC enforcement process. While the briefing provided interesting information related to parallel investigations, it was not responsive to anything requested in the letter,” they wrote.



The pair argue the 232 pages of documents the SEC provided were nothing more than publicly available information and an indirect response.



After complying with the agency’s request for the committee to narrow the scope of documents it was seeking, McHenry and Huizenga allege they were told it was a “time-consuming and extensive process” and were not provided with a definitive timeline.



“This is unacceptable,” the pair said in their letter. “We expect the staff recommendation memo to be produced immediately.”



The documents may contain certain information that could shed light on the SEC’s enforcement activities and decision-making processes against Bankman-Fried, as well as the crypto industry writ large.



<h2 class="wp-block-heading">A question of oversight</h2>



The approach to enforcement is a sore spot for many proponents, who <a href="https://blockworks.co/news/sec-crypto-enforcement-actions-accelerate">accuse</a> the agency of pursuing a campaign of <a href="https://blockworks.co/news/crypto-industry-eyes-secs-regulation-by-enforcement-ramp-up">regulation through litigation</a> against digital assets instead of via open dialogue and debate.



Regulatory agencies like the SEC are accountable to Congress and must cooperate with congressional oversight inquiries or risk legal ramifications and further scrutiny.



Despite subsequent staff-level conversations and a formal request from Huizenga to discuss matters with the SEC’s general counsel, none of the requested documents have yet been produced.



Gensler now has until April 17 to turn over the documents related to the committee’s investigation into Bankman-Fried, otherwise it may take matters into its own hands to compel action, if need be, the pair said. 



Gensler will also be required to present before the committee on April 18. An SEC spokesperson told Blockworks the chairman will &#8220;respond to Members of Congress directly, rather than through the media.&#8221;



Updated April 16, 2023 at 10:51 PM ET: adds response from SEC



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