Author: Nicole Rankin

We are thrilled to share the exciting news that the Chamber of Digital Commerce has once again been granted membership in the Financial Crimes Enforcement Network’s (FinCEN) Bank Secrecy Act Advisory Group (BSAAG) for another three-year term. This renewal reaffirms our position as the leading digital asset organization representing the industry’s interests in crucial regulatory discussions.

We are honored to be the only digital asset-focused member organization selected to participate in the BSAAG, a prestigious group that advises FinCEN on anti-money laundering (AML) and counter-terrorist financing (CTF) matters. This opportunity provides us with a unique platform to advocate sensible and effective policies that promote the growth and innovation of the digital asset ecosystem, while ensuring compliance with necessary regulatory measures.

Our continued presence in the BSAAG underscores the Chamber’s commitment to fostering dialogue and collaboration between the public and private sectors. As the digital asset landscape continues to evolve rapidly, it is crucial that our industry has a seat at the table where decisions impacting our members and the broader public are made. By actively engaging in discussions and sharing our industry expertise, we aim to shape policies that strike a balance between protecting against illicit activities and enabling the responsible development of digital assets and blockchain technology.

Our renewed membership in the BSAAG also serves as a testament to the Chamber’s unwavering dedication to driving positive change within the digital asset industry and affirms our standing with policymakers as a reliable and trusted voice for our industry Together, we will navigate the evolving regulatory landscape, shaping policies that embrace innovation and foster the growth of a responsible and compliant ecosystem.

Bank Secrecy Act Advisory Group (BSAAG)

BSAAG was created to provide FinCEN with advice and recommendations on matters related to the Bank Secrecy Act (BSA), AML, and CTF efforts in the United States.

The BSAAG is composed of representatives from various stakeholders including financial institutions, trade associations, law enforcement agencies, regulatory bodies, and other organizations involved in combating financial crimes. The members are selected based on their expertise and knowledge in AML/CTF matters.

The mission of the BSAAG is to foster public-private cooperation, enhance information sharing, and promote effective implementation of AML/CTF measures. It aims to strike a balance between preventing illicit activities such as money laundering and terrorist financing while minimizing the burden on financial institutions and encouraging innovation in the financial sector.

On April 25th, 2023, Cody Carbone, VP of Policy at the Chamber of Digital Commerce, testified in a New York State Senate Hearing: To educate legislators and the public on cryptocurrency, discuss regulation of FinTech companies, and discuss FinTech licensing legislation (S.1450/Sanders).

AUSTIN, TX – HB 1666, filed by State Rep. Giovanni Capriglione, passed in the Texas House of Representatives earlier today. The measure aims to rebuild trust in the market by requiring Proof of Reserves for digital asset exchanges.  

Below is the statement issued by Perianne Boring, Founder and CEO of the Chamber of Digital Commerce following its passage:  

“Congratulations to Rep. Giovanni Capriglione (R-TX) and the Texas House of Representatives on the passage of HB 1666, which seeks to protect Texas consumers’ investments in digital assets and addresses the critical issue of Proof of Reserves for exchanges. This legislation represents an essential step towards ensuring the stability and security of the digital asset market, and it is very promising to see this bill move forward.” 

“Our industry is committed to fostering innovation in the digital asset industry, and we strongly believe that transparency and trust are fundamental to its growth. The Proof of Reserves requirement in this bill is exactly what should be required by custodians to demonstrate that they hold sufficient assets to cover all customer deposits.” 

“We look forward to working with Texas lawmakers to continue to advance HB 1666 alongside the Innovation and Technology Caucus of the Texas Legislature and the Texas Blockchain Council. We believe this legislation can serve as a model for other jurisdictions seeking to ensure the stability and security of their digital asset markets.” 

The Chamber of Digital Commerce, Texas Blockchain Council, and Satoshi Action Fund, have written a letter urging Lieutenant Governor Dan Patrick to oppose SB. 1751.  This anti-free market and anti-bitcoin mining bill threatens Texas’ leadership role in the digital economy and could have unintended consequences on the state’s energy grid. 

The letter highlights that Bitcoin mining data centers are abundant in Texas and provide unique demand response capabilities, working in partnership with ERCOT to secure and stabilize the power grid. If passed, SB. 1751 would restrict Bitcoin mining data centers’ ability to participate in ERCOT’s grid balancing services, negatively impacting grid stability and leading to higher expenses and energy prices for Texans. The letter urges Texas to remain a beacon of free and open markets by opposing the bill.

FOR IMMEDIATE RELEASE:

Blockchain Leaders Launch Grassroots “Don’t Mess With Texas Innovation” Campaign to Stop Anti-Competitive Energy Bill in Texas

Austin, TX, Monday, April 10, 2023 – The Texas Blockchain Council, Chamber of Digital Commerce, and Satoshi Action Fund announced today the launch of a grassroots campaign aimed at protecting the state’s energy grid and opposing anti-competitive legislation under consideration by the Texas State legislature that would drastically restrict Bitcoin data centers’ participation in the Electric Reliability Council of Texas (ERCOT) grid balancing programs.

The campaign is a response to Senate Bill 1751, which would raise energy prices for Texans and discriminate against the blockchain industry.

“We need to send a strong message to policymakers that the people do not want protectionist policies that push innovation out of the market,” said Perianne Boring, Founder and CEO of the Chamber of Digital Commerce. “At a time when folks here are concerned with the economy, jobs, and a reliable energy grid headed into summer, this bill is the wrong proposal at the wrong time. We are calling all members of the Bitcoin and blockchain community to stand with us in Texas and join our campaign.” Chamber members represent more than 50% of the country’s hash rate on Bitcoin, including many companies operating in Texas.

The campaign is taking action against the bill by organizing opponents in Texas and nation-wide encouraging them to reach out to legislators through phone calls, letters, and social media in opposition of the bill.

Lee Bratcher, President of the Texas Blockchain Council, had this to say about the bill. “ERCOT procures ancillary services for extra capacity to be deployed if needed in an emergency, so by limiting Bitcoin miners’ participation by not allowing them to bid the price down, ERCOT and all Texans will be paying more for these services. This bill does not embody the free-market principles that have made Texas a global economic powerhouse.”

“This bill will stifle innovation, raise energy prices, and kill rural jobs in Texas,” said Dennis Porter, CEO of the Satoshi Action Fund. “The supporters of SB1751 want to interrupt the flow of the free market by creating an anti-competitive marketplace for the benefit of a small group of

industry insiders. A ‘NO’ vote would mean that Texas can continue to lead on energy innovation.”

Bitcoin miners in Texas employ more than 22,000 Texans and are a huge economic driver in rural areas. They also bring unique energy capabilities that have worked in partnership with ERCOT to secure and stabilize the power grid. Bitcoin mining companies were able to curtail 50,000 megawatt hours of electricity in July 2022 alone to respond to record heat and energy demand, ensuring that Texans could continue to cool their homes. No other industry can perform the same service as efficiently or effectively.

“Bitcoin miners have provided a valuable additional tool for ERCOT’s operators during tight supply conditions: a flexible load that can shut down so that needed electricity can flow to our most vulnerable customers,” said Brad Jones who served as ERCOT’s interim President and CEO in 2021 and 2022.

The Don’t Mess with Texas Innovation campaign is calling on Texans and the entire Bitcoin and blockchain industry to join the fight to protect the state’s energy grid and oppose Senate Bill 1751.

Join the campaign at www.dontmesswithtexasinnovation.com.

About Satoshi Action Fund

Satoshi Action Fund is an advocacy organization focused on educating policymakers and regulators on the benefits of Bitcoin and Bitcoin mining for the economy, the environment, and the grid.

About Texas Blockchain Council

The Texas Blockchain Council is an industry association working to make the State of Texas the jurisdiction of choice for Bitcoin, blockchain, and digital asset innovation.

About Chamber of Digital Commerce

The Chamber of Digital Commerce is the blockchain industry’s first and largest association. We are fighting to preserve the United States’ leadership in the digital economy through the acceptance and use of digital assets and blockchain technology.

The President’s Economic Report to Congress presents views of digital assets and blockchain that – to put it mildly – are both surprising and disappointing.  

Surprising because the very basis of its analysis: that our industry seeks to operate “without relying on governments and their regulatory frameworks” does not reflect the countless hours the Chamber of Digital Commerce, and it’s members have undertaken to work with policymakers in Washington, the states, and around the globe  to bring digital assets and blockchain technology further into the regulatory perimeter. 

Disappointing because this report fails to acknowledge regulatory agencies’ decade-long disregard and ambivalence toward developing meaningful policies that would provide clarity, certainty and investor protections for digital asset and blockchain-based businesses. As ongoing federal litigation indicates, efforts by our industry to build a clear and consistent legal framework have been stalled in favor of confusion and ridicule. 

Perhaps even more disappointing is the Report’s demonstrably false claim that crypto-assets have failed to provide benefits to users and the global economy. From Ukraine to El Salvador to Washington, DC, the digital asset and blockchain industry continues to create new and exciting opportunities that will forever change the global economy. These innovations have not been lost on other mature economies that have seized their promise and allowed them to flourish safety and soundness within their regulatory boundaries. The President’s Report illustrates that the United States is at a greater risk of falling behind. 

Nevertheless, we remain committed to fulfilling our education mission and working with policymakers to foster a legal framework for these innovative technologies that prioritizes consumer protection and U.S. leadership in innovation. 

“As regulators look to build renewed confidence in our financial system, digital assets and blockchain should play an integral role in updating our banking infrastructure. Blockchain rails, for example, can provide certainty and transparency to banking customers seeking real-time access to their funds.

This is an inflection point for the banking system. Regulators and policymakers should step away from the discriminatory tone, in recent months, aimed at the digital asset industry and their banking partners. Rather, they should seriously consider how new innovations can contribute to solutions that solve an old set of problems that have yet again undercut public trust in our financial system.”

– Perianne Boring, Founder and CEO, Chamber of Digital Commerce

We are at an inflection point. The ongoing banking crisis has created questions about the relationship between digital assets, blockchain technology and the U.S. banking system. Forthcoming, there will be increased scrutiny of the industry and its relationship with traditional financial services. It is critical that we respond to this reality with viable solutions.

To that end, we have curated a list of talking points for our membership focused on the potential of blockchain technology as the solution, not the problem, for the U.S. banking system and solving the issue of industry access to banking services. 

1. What happened: On March 8, Silvergate Bank voluntarily commenced the process of liquidation. This was followed by regulatory takeovers of Silicon Valley Bank on March 10 and Signature Bank on March 12. Poor risk management and internal controls, mismatched duration of investments against deposits, rapid asset growth, and overreliance on uninsured deposits, among other things, were critical regulatory deficiencies leading to these banks’ demise. 

2. Crypto has a banking problem, but banking doesn’t have a crypto problem. Each of these failures is the result of poor risk management of customer deposits and a subsequent bank run. Regulators pressuring banks to be hyper-cautious in working with blockchain companies without providing regulatory clarity has concentrated risk in a small subset of the banking industry. This has led to less banking options for crypto companies and has ensured that only a few bank entities are exposed to industry-specific market events. 

3. Crypto and blockchain technology is a solution. The recent failures would not have been possible in a decentralized, transparent, auditable, and over-collateralized crypto asset ecosystem. The transparency of blockchain technology eliminates the opacity and regulatory mistakes of the traditional financial system. For example:
   1. Transparency: Blockchain technology can help improve transparency by creating an immutable and transparent ledger of all transactions. This would allow regulators to monitor and audit financial transactions in real-time and detect any suspicious activities.
   2. Smart Contracts: Smart contracts can be used to automate financial transactions and enforce regulatory compliance. This can help reduce the risk of human error and ensure that transactions are executed according to regulatory requirements.
   3. Identity Verification: Blockchain technology can be used to create a secure and decentralized identity verification system. This would allow banks and other financial institutions to verify the identity of their customers more easily and securely.

4. Crypto needs banking partners. The blockchain and digital assets industry’s three largest banking partners are no longer in existence. This void must be filled and businesses are searching for safe, effective alternatives but U.S. options are limited.
   1. Any efforts from federal banking agencies to undermine U.S. competitiveness, including attempts to sever crypto firms’ relationships with their U.S. banking partners, presents a number of legal, ethical, financial stability, and national security concerns.
   2. Unlawful banking discrimination campaigns against any legal industry should be alarming to policymakers, regulators, and to the general public. And for the digital assets space in particular, the Chamber of Digital Commerce stands ready to push back against any attempts to thwart consumer and investor demand for digital asset products & services.

5. If regulators continue to discriminate, the U.S. will lose. The reputational risks of crypto have led to increased regulatory pressures on bank partners to stay away from working with lawful businesses. Without consistent, reliable access to the U.S. banking system, industry is being forced to relocate to more welcoming jurisdictions. This is a troubling precedent and a threat to U.S. competitiveness and national security. 

What we’re advocating for:

1. We encourage the appropriate congressional members and committees to utilize their oversight and investigatory powers to illuminate how coordinated actions by the federal prudential regulators (Federal Reserve, Office of Comptroller of the Currency, Financial Depository Insurance Corporation) have impacted the relationship and provision of services between U.S. banks and the blockchain and digital asset industries.
   1. See: Letter from House Majority Whip Tom Emmer (R-MN) to FDIC Chairman Martin Gruenberg “regarding reports that the FDIC is weaponizing recent instability in the banking sector to purge legal crypto activity from the U.S.” (March 15)
   2. See: Letter from Senator Bill Hagerty (R-TN) to the bank agency heads demanding answers on application of pressure on financial institutions to cut off services to licensed, legally operating cryptocurrency and digital asset companies. (March 9)

2. We encourage passage of S.245,the “Financial Institution Customer Protection Act,” which would prohibit a federal banking agency from requesting or ordering a depository institution to terminate a customer account unless: (1) the agency has a valid reason for doing so, and (2) that reason is not based solely on reputation risk. 

3. As regulators look to build renewed confidence in our financial system, digital assets and blockchain should play an integral role in updating our banking infrastructure. We encourage the Biden Administration to immediately appoint a ‘Blockchain and Cryptocurrency Specialist’ within the Office of Science Technology and Policy as statutorily required by the CHIPS and Science Act of 2022. 

The litigation between the SEC v. Ishan Wahi, Nikhil Wahi, and Sameer Ramani (abbr. Wahi) is an unprecedented, stealth attempt to expand the agency’s jurisdictional reach, and threatens the health and viability of the U.S. marketplace for digital assets. 

The case represents a new front in the SEC’s longstanding “regulation by enforcement” campaign, one which has already caused a great deal of harm to the digital asset industry, as well as investors in digital assets.

The Chamber, alongside the legal team at Winston & Strawn LLP, has filed an amicus brief seeking to dismiss the case and put an end to the SEC’s attempt at “back door” rulemaking. Should the Court support the SEC’s claim that the digital assets at issue in this case  are in fact “securities,” that decision would have far-reaching implications for the digital assets industry and we felt that it was imperative to share our concerns with the Court.

Several proposed pieces of legislation currently pending before Congress would help clarify the chaotic regulatory environment for digital assets. Presently, the lack of clear rules and regulations have created significant uncertainty, driving innovators in this space offshore and reducing U.S. competitiveness and its ability to protect investors.

Unfortunately, rather than waiting for congressional action – or even using its rulemaking authority to promulgate rules  or issue adequate binding guidance for the digital asset industry – the SEC has forged ahead with lawsuits and enforcement activity.

In doing so, the SEC is relying on laws enacted in the 1930s, as well as on a 1940s Supreme Court decision, United States v. Howey, which related to investments in a Florida orange grove.  Howey set a four-prong test for determining whether a given asset was sold as an “investment contract” and thus constitutes a securities offering but does not shed any light on whether the underlying asset itself is a security.  Additionally, the Howey test was never meant to apply to the sorts of secondary market transactions at issue here, where there was no “contract” at all. 

The allocators who created the tokens at issue in Wahi, the digital asset exchanges that facilitate their purchase and sale, and the many other entities and individuals that own, trade, advise on, or use those tokens to do business do not consider them to be securities—and there is no federal law stating that they are. Given the opaque regulatory environment, other federal regulators—and even high-ranking officials within the SEC itself—have criticized the SEC’s approach, which is increasingly reflecting the view that all digital assets transactions are securities transactions, even if they bear none of the hallmarks of an “investment contract” under the Howey test.

The Chamber has requested that the Court dismiss the case–noting that the action exceeds the SEC’s statutory authority–and put an end to the SEC’s attempt at this kind of “back door” rulemaking. We also note that judicial restraint in this matter would not let the alleged wrongdoers off the hook; they have been indicted by the DOJ, pled guilty and are certainly subject to an action for civil fraud, as well. A ruling embracing the SEC’s position and endorsing its tactics, however, would have tremendously negative implications for the digital economy and its institutional and individual participants.

In addition to Winston & Strawn, the Chamber would also like to thank our members who contributed to the preparation of the brief, including, among others, Lee A. Schneider of Ava Labs, Rana Kortam of Binance, Steven Gatti and Jesse Overall of Clifford Chance, Lewis Cohen and Freeman Lewin of DLx Law, and Jeremy Williams of TradeStation Crypto, Inc. 

Washington D.C. – Rep. Giovanni Capriglione (R-TX) introduced HB 1666, to protect Texas consumers’ investments in digital assets and to address the important issue of Proof of Reserves, a crucial component in ensuring the stability and security of the digital asset market.

In May of 2021, the Chamber of Digital Commerce crafted a consistent, industry-wide standard for Proof of Reserves to increase the confidence level of consumers, policymakers, and regulators that exchanges and custodians are managing their assets appropriately. Since then, the Chamber has advocated that this standard of transparency, which requires verification that a custodian holds that appropriate reserve backing the digital asset for the customer, must be implemented and enforced. 

The following statement may be attributed to Perianne Boring, Founder and CEO of the Chamber of Digital Commerce: 

“The Chamber of Digital Commerce is committed to fostering innovation in the digital asset industry and advancing policies that protect consumers, promote market integrity, and support the growth of this rapidly evolving sector. HB 1666, through its Proof of Reserve requirement, is a significant step in reinforcing transparency and trust in digital asset markets that can demonstrate that they hold sufficient assets to cover all customer deposits. 

“Representative Capriglione’s bill highlights the innovative technology advantages blockchain and digital assets offer consumers seeking greater control of their assets, as well as policymakers seeking transparent and efficient accountability for custodians. We commend Representative Capriglione for his leadership on this issue, as well as the work of the Innovation and Technology Caucus of the Texas Legislature and the Texas Blockchain Council.”

On, March 21, 2023 at the DC Blockchain Summit, the Chamber of Digital Commerce will host a  session entitled, “Don’t Trust, Verify – Proof of Reserves” where industry leaders will discuss HB 1666 and how a transparent system of proof of reserves can expand and reinforce confidence in our industry.