Category: Uncategorized

House Agriculture Committee 

Hearing entitled: For the Purpose of Receiving Testimony from The Honorable Rostin Behnam, Chairman, Commodity Futures Trading Commission 

On March 6, 2024, the House Committee on Agriculture received testimony from the Honorable Rostin Benham, the Chairman of the Commodity Futures Trading Commission (CFTC). Chairman Benham was the hearing’s sole witness and his testimony focused on the agenda and work of the Commission and its priorities regarding both agricultural commodities, and the need for a digital asset regulatory framework to protect and incentivize investment and the retainment of business in the US. The Committee also asked Chair Benham about artificial intelligence and quantum computing’s current and potential growth and influence in commodities trading.  

Unsurprisingly, digital assets were a key focus. The hearing comes at a time where cryptocurrency has majorly reentered the public eye due to its recent price resurgence. We have provided a summary below. If you have any questions, please reach out to Mack LaBar at Mackenzie@digitalchamber.org.  

Overall Takeaway:  

There was consensus that digital assets have arrived as a major industry that needs regulatory clarity. There was broad support from members, and even Chairman Benham, for the Financial Innovation and Technology (FIT) for the 21^st Century Act (“market structure” bill), led by Committee Chair GT Thompson (R-PA). Benham said the CFTC could implement a regulatory framework if directed by the FIT Act within 12 months and that it was a critical bill for hiring talent, building software, hardware, as well as infrastructure. “Crypto going away is a false narrative,” said Benham.  

There was substantial focus as well on digital asset categorization and whether cryptocurrencies, specifically Ethereum, should be identified as a commodity. Benham was adamant that Ethereum is a commodity and stated that in the case of the SEC validating a ruling that stated digital assets were either securities or commodities, the CFTC would be involved in ensuring that the steps taken were deliberate, and that a focus was put on preserving market compliance and integrity. 

Summary: 

In his opening statement, Chairman Benham pleaded for more regulatory authority over digital assets, highlighting that in FY2023 the CFTC saw 47 actions relating to conduct in the digital assets space, which represented 49% of all Commission enforcement actions… “a staggering statistic considering no federal agency directly regulates the cash digital commodities market,” said Chairman Benham.  

The Chairman continuously advocated for the “filling of gaps” in the crypto and digital assets space, which not only include compliance but also the movement of business overseas to countries in Europe and Asia. The Chairman stated that the regulatory environment in such countries over the course of the three years that he has been CFTC chair, has improved drastically.  He also advocated for the identification of digital assets as commodities, an important debate that would distinguish the authorize of both the SEC and the CFTC in the crypto space. 

Rep. Duarte (R-CA) pushed back against this movement and voiced his opposition to “shoehorning” crypto into either the commodities or securities box and questioned the technology’s legitimacy as a true store of value that investors could observe and trust. Chairman Benham asserted that the question of legitimacy was irrelevant and that regardless of the technologies legitimacy, it is a rapidly evolving market and space where investors stand to lose money and potentially face malpractice within the industry, requiring regulation. Benham went on to state that commodities — even after acknowledging that there are enumerated commodities such as corn, wheat, gold, silver, and fuel — are often assets that are simply “not a security” which could be assessed through a Howie Test, a test that assesses whether or not a transaction is an investment and should be regulated.  

Rep. Langworthy (R-NY) asked about the trend of “disintermediated” crypto transactions and whether this trend should be something the CFTC should be investigating and considering regulation for. Chair Benham commented that these platforms that effectively remove the brokerage stage of asset acquisition offer certain advantages to investors such as removing “frictional barriers” but also acknowledged that these barriers that have been in place in traditional stock purchasing for decades, have acted as barriers to malpractice and security risks, and act as protections for market integrity. 

Both Rep. Budzinski (D-IL) and Rep. Soto (D-FL) asked about the FIT Act regarding the importance of passing it, and the timetable for implementing a regulatory structure under the law, were it passed with substantial funding.  

As stated, Benham is supportive of the bill highlighting its necessity because Bitcoin and Ethereum make up 60% to 70% of the whole market capitalization of digital assets and the CFTC needs delegated authority to regulate. Rep. Casar (D-TX) was a lone exception that lamented legislative efforts should be deprioritized in favor of more research on the appropriate regulatory authority for digital assets and marketplaces. 

Today marks a significant triumph for the cryptocurrency mining sector as the U.S. Energy Information Administration (EIA) has retracted its emergency survey targeting cryptocurrency miners. In coordination with The Texas Blockchain Council and Riot Platforms, the Chamber of Digital Commerce prevented the survey’s implementation. Following initial success in securing a Temporary Restraining Order (TRO) last week, the EIA officially rescinded the survey and its emergency justification.   

This development represents a monumental victory for the industry. As per the agreement reached today, if the EIA seeks to survey cryptocurrency miners in the future, the EIA must undergo the proper notice and comment procedure mandated by law, ensuring public input on the survey’s scope before any re-issuance. We urge the community to remain alert and engage in the comment process should it become available.  

 This win for the cryptocurrency mining industry underscores the importance of transparency and adherence to the rule of law. We extend our heartfelt gratitude to the Texas Blockchain Council, Riot Platforms, and the legal teams at Gray Reed LLP, National Civil Liberties Alliance, and Cherry, Johnson, Siegmund, James, PLLC for their pivotal roles in this achievement. The swift and unified response of this coalition has been remarkable, and we are enthusiastic about the possibilities this victory opens for the future.  

 Background

On January 31, 2024, the EIA released a mandatory survey of cryptocurrency miners using an ‘emergency’ justification. The Chamber of Digital Commerce immediately acted to protect the industry and our mining members. While we support reasonable data sharing, this survey and the emergency justification were not reasonable, leading to an imminent threat of irreparable harm to the U.S. cryptocurrency mining industry.   

During this time, we reached out to the Energy Information Administration (EIA) several times to revise the process and the survey but to no avail. After TBC and Riot Platforms initiated the lawsuit last week, we joined as a co-plaintiff to shield our members from the survey’s potential damages. Following our victory in obtaining a Temporary Restraining Order (TRO) that prevented the EIA from enforcing the survey, the government has now consented to abandon the current survey initiative.  

The Chamber of Digital Commerce is pleased to see that H. Res 109, a Joint Resolution to Disapprove of the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) 121 has successfully passed markup and is now progressing to the House floor.

This bipartisan initiative, led by Congressmen Mike Flood (R-NE) and Wiley Nickel (D-NC), nullifies SAB 121’s harm to consumer protection and represents a decisive action to ensure the SEC operates within its designated rulemaking authority. 

The Chamber has been focused on highlighting the issues presented by SAB 121 to Congress, advocating for a balanced and informed approach to digital asset regulation. We are optimistic about the resolution’s ultimate passage on the House floor and remain committed to facilitating a regulatory environment that supports innovation while protecting consumers.

Read our blog on the introduction of the Joint Resolution

Read our letter to the SEC’s Office of Chief Accountant on SAB 121 implementation

The Chamber of Digital Commerce has submitted a motion for leave to file an amicus curiae brief in the ongoing SEC v. Payward, Inc. (Kraken) case. This move underscores the Chamber’s commitment to advocating for clear and fair regulatory frameworks that support the growth and innovation of blockchain technology.

At the heart of this legal battle lies the SEC’s approach to digital assets, which the Chamber’s Brief argues is fundamentally flawed. The SEC’s efforts to classify all digital asset transactions as securities transactions not only misinterprets the law but also poses a grave threat to the future of blockchain technology. The Chamber firmly believes that digital assets, by their nature, are not inherently “investment contracts” and should not be blanketly regulated as such.

The implications of the SEC’s aggressive enforcement stance towards digital asset companies like Kraken are far-reaching. Should the SEC’s interpretation prevail, it could have a chilling effect on the trillion-dollar digital asset space, potentially stifling innovation and hindering the development of the U.S. economy in this critical sector.

Leading the charge on the amicus brief were Jaime Bartlett, Partner, Lilya Tessler, Partner and head of the FinTech and Blockchain Group, and David Goldenberg, Senior Managing Associate, all from Sidley Austin LLP. Their expertise and dedication have been instrumental in articulating the Chamber’s position and advocating for a more nuanced understanding of digital assets. The Chamber also extends its gratitude to the members of the Token Alliance who have contributed to this effort. Their insights and support have been invaluable in shaping the arguments presented in the brief.

As this case progresses, the Chamber of Digital Commerce remains steadfast in its mission to promote the adoption and advancement of blockchain technology. We believe that with the right regulatory environment, digital assets can continue to flourish, driving innovation and prosperity in the U.S. economy. For a history of the Chamber’s pushback against the SEC’s overreach of digital assets, read previous amicus briefs here:

• SEC v. Binance.US Amicus Brief
• SEC v. Coinbase Amicus Brief
• SEC v. Wahi Amicus Brief
• SEC v. Ripple Amicus Brief
• SEC v. Telegram Amicus Brief

SEC v. Kraken Timeline

• February 9, 2023: The U.S. Securities and Exchange Commission (SEC) announced charges against Payward Ventures, Inc. and Payward Trading Ltd. (collectively, Kraken) for failing “to register the offer and sale of their crypto asset staking-as-a-service program.” To settle the SEC’s charges, Kraken agreed to immediately cease offering or selling securities through crypto asset staking services or staking programs and pay $30 million in disgorgement, prejudgment interest, and civil penalties.
• November 20, 2023: The SEC charged Kraken with operating Kraken’s crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency. The SEC’s complaint also alleged that Kraken commingles its customers’ money with its own, including paying operational expenses directly from accounts that hold customer cash and commingles its customers’ crypto assets with its own.
• February 22, 2024: Kraken filed a Motion to Dismiss the SEC’s suit. Kraken’s Motion stated that “the SEC does not allege fraud. The SEC does not allege consumer harm. The SEC’s sole claims are that Kraken has somehow operated in plain sight for almost a decade as an unregistered securities exchange, broker-dealer, and clearing agency, in violation of the Exchange Act.” Kraken also states the SEC did not “plausibly allege” any of the cryptocurrencies listed in its complaint are securities or investment contracts and the SEC did not meet the requirements set out by the Howey Test.

The Chamber of Digital Commerce is taking legal action to protect our members in the cryptocurrency mining community. In an effort to petition for injunctive and declaratory relief from the U.S. Energy Information Administration’s mandatory survey, the Chamber is joining the efforts of the Texas Blockchain Council and Riot Platforms. 

On January 26, 2024, the White House’s Office of Management and Budget (OMB) authorized the survey of commercial cryptocurrency miners as an emergency collection of data request. On behalf of our membership, the Chamber of Digital Commerce is seeking to stop the most recent unjustified and politically motivated attack on the digital asset industry.  

Perianne Boring, Founder and CEO of the Chamber of Digital Commerce, provided the following statement.   

“By participating in the challenge of Secretary Granholm’s and Administrator DeCarolis’s ‘emergency’ survey, the Chamber aims to prevent the unlawful collection of industry data. This survey represents a politically charged effort by the Biden administration to undermine a law-abiding sector that is significantly powered by renewable energy and contributes to the reduction of greenhouse gas emissions.” 

She added that “the approval of this emergency survey, devoid of justified rationale, coupled with the EIA’s refusal to engage in standard notice and comment rulemaking, showcases a disturbing trend of political bias against our industry. This is not merely about data collection; it is about the administration’s publicly stated objective ‘to limit or eliminate’ the cryptocurrency industry.  The Chamber remains committed to representing and defending the digital asset industry against regulatory overreach and will continue to monitor the situation closely, advocating for transparent and equitable treatment under the law.”  

For more information, please contact Press@digitalchamber.org  

Stop the crypto ban!

We’ve received concerning news from Capitol Hill: Senator Sherrod Brown, who serves as the Chairman of the Senate Banking Committee, is considering moving forward with S.2669, Senator Elizabeth Warren’s Digital Asset Anti-Money Laundering Act. This bill, if passed could lead to a ban on cryptocurrency within the United States. Advancing the bill for markup in the Committee is a significant action, as it represents a vital phase in the legislative process, edging the bill nearer to the possibility of being enacted into law.  

Today, we sent a letter to Chair Brown urging him against this move. You can view the full letter here. 

While Senator Warren’s bill purports to protect against money laundering, it is a wolf in sheep’s clothing—a back-door ban on cryptocurrency.  

What is at stake? 

The bill could be used as a gateway to restrict and hamper technological innovation and jeopardize the U.S. position in the global digital economy. Stifling regulations could drive the industry overseas, causing significant economic damage to millions of U.S. crypto holders and businesses. 

What is our position? 

S. 2669 is unworkable and is not worthy of consideration. Senator Warren has promoted the bill under false-pretenses and misled several senators about its implications using debunked data and incorrect narratives. Our team has met with all 19 co-sponsors of the bill, and many were surprised to learn about its far-reaching implications.  

Here’s a video of Senator Roger Marshall saying the bill is a “light touch.”  

We have been working WITH policymakers to create a common-sense regulatory framework for digital assets. We have endorsed several legislative proposals including The Financial Technology Protection Act, The CLARITY Act, The FIT for the 21st Century Act, and The Responsible Financial Innovation Act.  

We are creating a campaign named Stop the Crypto Ban and are fighting aggressively to kill this bill. 

What can you do? 

Sign the petition against the bill.  

Your support is crucial in preserving blockchain development and innovation in America. 

The Chamber of Digital Commerce is thrilled to acknowledge the remarkable progress made in the realm of crypto asset accounting standards, thanks to the diligent efforts of the team at the Financial Accounting Standards Board (FASB). The completion of the technical agenda project late last year on certain crypto assets represents a pivotal advancement in our industry.

The updated guidance serves as an essential tool for businesses and financial statement users navigating the complex landscape of digital asset accounting. It fosters greater transparency and consistency across the industry, showcasing US leadership in establishing sensible accounting standards.

Looking Forward: A Call for Continued Collaboration

The Chamber of Digital Commerce is eager to continue our collaboration with the FASB. We believe that through ongoing dialogue and partnership, we can address the evolving needs of the crypto asset market and establish comprehensive, resilient accounting practices that capture the true economic essence of crypto assets.

An Invitation to Dialogue

We are curious about the FASB’s vision for the next steps in refining crypto accounting standards and how organizations like ours can support these efforts. The potential for follow-up on wrapped crypto assets, stablecoins, or NFTs presents an exciting avenue for further exploration.

Read our ‘Thank You’ letter to FASB exploring further collaboration efforts.

Summary

On February 15, 2024, the House Committee on Financial Services Subcommittee on Digital Assets held the second part of its Crypto Crime in Context hearings. Witnesses for the hearing included: 

• Caroline Hill, Senior Director of Global Policy and Regulatory Strategy at Circle

• Michael Mosier, Co-Founder and Partner, Arktouros

• Grant Rabenn, Director, Financial Crimes Legal, Coinbase 

• Carole Noelle House, Senior Fellow, Atlantic Council; Executive in Residence, Terranet Ventures

• Ari Redbord, Global Head of Policy and Government Affairs, TRM Labs (one of our very own National Security Task Force leaders)

These hearings are in response to the October 7th attacks on Israel by Hamas, which raised concerns over cryptocurrency’s role in illicit finance. This hearing focused on the current landscape of illicit finance in the digital asset industry, gaps in compliance, blockchain analytic tools, as well as current legislative proposals and risk assessments that may have significant effects on our industry. 

Overall Takeaway: The hearing underscored the complexity of regulating digital assets and the importance of balancing innovation with robust compliance measures. The need for continuous collaboration between the industry and regulatory bodies was emphasized to ensure a secure digital asset environment. We anticipate that increased focus on sanctions enforcement across the industry is extremely likely. The Chamber of Digital Commerce will continue to be a lynchpin to facilitate cooperation and actively foster sensible laws that enable blockchain technology to thrive in the U.S. 

Summary

In his opening statement, Subcommittee Chairman French Hill (R-AR) emphasized the critical need for a balanced regulatory approach to digital currencies, highlighting the challenges posed by the decentralized nature of the blockchain. He advocated for a combined strategy of domestic and international regulatory cooperation to address potential gaps being exploited by bad actors. This perspective aligns closely with the Chamber of Digital Commerce advocacy for proactive and collaborative regulatory measures. Alongside Ranking Member Stephen Lynch’s (D-MA) observations about the rising use of digital assets in ransomware attacks and other illicit activities, their insights reinforce the Chamber’s stance on the importance of evolving regulation and technological capabilities in the crypto sector.

Witnesses gave very strong opening statements, particularly Michael Mosier urging government to “resource existing treasury authorities before adding more unfunded mandates. Throwing more shovels at people who already have 15 in each hand is not making them more effective, it’s setting them up for failure.” This underscored the importance of government resource allocation, cautioning against the ineffectiveness of overburdening agencies with unfunded mandates. Carole House offered four areas for proposed action to reduce illicit activity that may be indicative of where future legislative and regulatory action will evolve:  

(1) Enhance regulatory and enforcement capability to take sustained, timely actions against the most egregious violators in the space through prioritized agency funding and honing of disruption authorities (e.g., FinCEN’s 311 and 9714),

(2) Promote timely international action on FATF standard adoption through diplomacy and capacity building across priority jurisdictions,

(3) Enhance outcome-oriented public-private partnerships for info sharing and R&D (examples like NCIJTF’s IVAN program, NCFTA, the FBI’s Financial Fraud Kill Chain, FinCEN’s Rapid Response Program, Crypto-ISAC, IST Ransomware Task Force, etc.) and,

(4) Promote development of secure, trustworthy, and interoperable digital identity infrastructure.

Reps. Ritchie Torres (D-NY) and Wiley Nickel (D-NC) expressed support for blockchain technology, and cited the nature of distributed ledger technology as a major benefit for combating illicit finance. Chair Hill also stated that most illicit activity using digital assets occurs offshore where U.S. regulations do not apply. Witnesses came to consensus on these ideas and reinforced the miniscule amount of illicit activity happening through digital assets in comparison to traditional finance.

Full Committee Ranking Member Maxine Water (D-CA), Subcommittee Ranking Member Lynch and Representative Sean Casten (D-IL) spoke on their primary concerns with the decentralized nature of DeFi allowing for illicit activity and the prevalence of off-chain illicit activity. Takeaway: As off-chain transactions are used more widely to improve blockchain scalability this issue of regulating off-chain transactions could become more prevelant. 
Rep. Brad Sherman (D-CA) continued his previous rhetoric against the industry, by stating that the sole purpose of CVC Mixers is for illicit activity. Takeaway: Rep. Sherman intentionally neglects to see the privacy benefits of mixing technology. See the Chamber’s response to FinCEN’s notice of proposed rulemaking on CVC mixing.

How We See It:

Maybe unsurprisingly, Democrats and Republicans seem to be talking past one another. Republicans emphasized Treasury’s admission that blockchain is not the preferred vector for terrorists to finance their activities while Democrats emphasized that there is still likely more illicit activity occurring than is being detected or reported. This is probably a “both, and” situation and not an “either, or”– it is likely that there is more activity taking place than is being detected and still not nearly as much proportionately as is taking place on traditional financial rails and via the hawala network. Still, this was an important admission coming from the Undersecretary for Terrorism and Financial Intelligence. Democrats advocated for additional resources to enable FinCEN to operate effectively, a perennial need, while also repeating the red herring that crypto is only used by criminals and terrorists. However, the continued attention on the topic and the positive comments of the Undersecretary are beginning to erode this kind of non-starter, unhelpful perspective that does not move the conversation forward.

Yesterday, the House Financial Services Committee conducted a hearing titled “Oversight of the Financial Crimes Enforcement Network (FinCEN) and the Office of Terrorism and Financial Intelligence (TFI)” and featured testimony from Brian E. Nelson, the Undersecretary for Terrorism and Financial Intelligence at the Department of the Treasury, and Andrea Gacki, Director of FinCEN.

The hearing primarily addressed the roles of FinCEN and the Treasury in thwarting illegal financial activities by malicious entities and terrorist groups. Discussions revolved around the enforcement of Suspicious Activity Reports (SARs) and the implementation of the Corporate Transparency Act (CTA), which mandates companies to report Beneficial Ownership Information to FinCEN, and aligning with the Anti-Money Laundering and Countering the Financing of Terrorism Framework (AML/CFT).

The most notable moment came when Representative Tom Emmer (R-MN) inquired about the extent of digital asset utilization by terrorist organizations like Hamas. Undersecretary Nelson clarified that the use of cryptocurrencies by Hamas is significantly less than reported by the Wall Street Journal, indicating that cryptocurrencies are not a favored tool among Hamas terrorists, a sentiment that Rep. Bryan Steil (R-WI) echoed later in the hearing. Other key points include:

• Committee Chairman Patrick McHenry (R-NC) emphasized the need to prevent foreign adversaries from exploiting the U.S. financial system for illicit purposes, questioning the effectiveness of the beneficial ownership reporting regime in helping to catch bad actors. He also expressed frustration at the continual request for more resources and funding with a seeming lack of results.
• Committee Ranking Member Maxine Waters (D-CA) highlighted the Treasury’s role in bringing the cryptocurrency exchange Binance to justice, resulting in a $4.3 billion settlement, and criticized Republicans for not supporting increased funding and authority for Treasury and other national security agencies.
• Undersecretary Nelson discussed the minor role of cryptocurrency in funding militant groups and the efforts to address compliance gaps in the crypto space. Undersecretary Nelson also emphasized that the Treasury is considering systemic deficiencies in U.S. AML/CFT regime.
• Director Gacki highlighted FinCEN’s five-year monitorship of Binance, the opportunities that processing SARs from activity in recent years creates and that FinCEN needs to be adequately funded being at the forefront of virtual asset expertise and monitoring.
• Representative Brad Sherman (D-CA) continued his criticism that cryptocurrencies are primarily used by drug dealers and terrorists.
• Representative Ritchie Torres (D-NY) argued that FinCEN’s proposed rules on mixers are unnecessary, as financial institutions are already required to file SARs for mixer transactions.
• Representative Sean Casten (D-IL) highlighted the prevalence of illicit crypto transactions and use of mixers, urging FinCEN to continue its monitoring efforts while suggesting that illicit activity on-chain and on-exchange are much more prevalent than is currently reported.

In an industry where trust is paramount, Chamber of Digital Commerce member Bitwise has taken a groundbreaking step by becoming the first Bitcoin ETF provider to publicly display its bitcoin wallet address. This move not only sets a new standard for transparency in the ETF sector but also aligns perfectly with the foundational ethos of public blockchain technology: openness, transparency, and trust.

The Importance of Transparency

Transparency is the cornerstone of the blockchain. It allows for every transaction to be verified, traced, and audited by anyone, anywhere in the world. This level of openness is what attracted many to cryptocurrencies in the first place, promising a financial system where trust is built into the technology itself.

Bitwise’s decision to publicly display its Bitcoin wallet addresses for ETFs is a significant nod to this ethos. For investors, this means an unprecedented level of insight and reassurance. They can now see, in real-time, where their assets are held and monitor their investments with a level of detail that was previously unavailable in the traditional financial system.

A Call to Action for Other ETF Providers

While Bitwise’s initiative is commendable, it’s just the beginning. We believe that what Bitwise has done should not be the exception but the norm. We urge other ETF providers to follow suit and offer similar transparency to their investors. By doing so, they can significantly enhance investor confidence, reduce skepticism, and foster a more trustworthy investment environment.

The Benefits of Wallet Transparency

• Enhanced Investor Confidence: By allowing investors to see where their Bitcoin is held, ETF providers can build a stronger relationship based on trust and transparency.
• Reduced Risk of Fraud: Public wallet addresses make it harder for bad actors to mislead investors or mismanage funds, as all transactions are visible and can be audited by the public.
• Alignment with Blockchain Principles: Adopting practices that reflect the transparency and openness of blockchain technology demonstrates a commitment to these transformative ideals.

Moving Forward

As the financial world continues to evolve with the integration of blockchain technologies, it’s imperative that we uphold the principles that make these technologies so revolutionary. Transparency, openness, and trust should not just be buzzwords but guiding principles for all financial instruments, including ETFs.

Bitwise’s initiative is a commendable step in the right direction, but it’s just the start. We call on other ETF providers to embrace this level of transparency, thereby reinforcing the trust investors place in them and in the broader financial system.

The future of finance is transparent, decentralized, and open. Let’s work together to ensure that our investment practices reflect these ideals. By doing so, we not only enhance the integrity of our financial systems but also pave the way for a more inclusive and equitable global economy.

Conclusion

The public display of Bitcoin wallet addresses by Bitwise is a pioneering move that should inspire other ETF providers to embrace transparency. This is not just about following a trend; it’s about committing to the principles of the public blockchain and fostering a more secure, transparent, and trustworthy investment landscape.