A big step for crypto

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Jun 05, 2023 View in browser   By Zachary Warmbrodt Presented by Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. Whether you love or hate crypto, it's time to pay attention to what's cooking in Congress on digital assets. The Republican leaders of the House Financial Services and Agriculture Committees on Friday released a sweeping, 162-page rethink of how the U.S. government polices digital currencies and the market that's grown up around them. You should care because the draft plan marks leading lawmakers’ most ambitious attempt yet to set up a new regulatory regime for crypto. It's got a long road ahead — House Democrats have yet to put their stamp on it, much less the Senate — but this is now the main event in Washington when it comes to digital asset policy. A primer The bill would redefine the reach of the SEC and the CFTC in the most significant way since the 2010 Dodd-Frank law. The CFTC would be the big winner, taking on exclusive jurisdiction over a new category of so-called digital commodities and related trading platforms. The SEC — which has intervened more and more into crypto in recent years — would still have a role but within some new guardrails. It's a huge shift for the CFTC, which has historically regulated derivatives like futures contracts but has not had direct oversight of the commodities underlying those instruments. The heart of the regulatory reset is how the bill parses out what would be regulated by the CFTC as a digital commodity rather than by the SEC as a security. One road to the CFTC would be whether the token operates on a decentralized network. The SEC would have the opportunity to challenge such a certification but within a limited time window and subject to court appeals. For a deeper dive into the details, read Justin Slaughter's 212-piece Twitter thread on what's in the bill, what’s missing and where he believes the political fault lines lie. Justin is policy director at crypto fund Paradigm and spent years in government working for Democrats at the SEC, CFTC and Capitol Hill. The real fight is about crypto legitimacy Democrats and consumer watchdogs will find plenty to balk at in the details of the bill — it no doubt embraces "innovation" as an important guiding principle. But Republicans would still impose regulatory red tape on crypto firms, even those issuing digital assets under a new securities exemption, for instance. The bill also rests on a series of rulemakings that, as we've learned from Dodd-Frank, could take years to wrap up and take shape based on presidential politics, industry lobbying and litigation. Skeptical leadership at the SEC and CFTC could still set up hurdles for the industry. The fundamental clash around the proposal will be whether Congress should give crypto its own custom legal pathway in the first place. The space has been rife with financial mismanagement and fraud, not to mention dubious claims about the practical value of crypto instruments beyond financial speculation. Why does it deserve special treatment? The crypto world is sending positive vibes, for now. “A comprehensive bill of this magnitude warrants an in-depth review, which we’ll be conducting over the coming days,” Coinbase chief legal officer Paul Grewal, who will testify at House Ag Tuesday and whose company is challenging the SEC’s authority, said on Twitter. “But what we’re seeing so far is encouraging.” It's Monday — What do you think of the new crypto bill? We’d love to include your voice in MM: Zach Warmbrodt, Sam Sutton. A message from the American Bankers Association: The banking system works best when it works for all Americans. Thanks to initiatives like Bank On-certified accounts, the number of unbanked in the U.S. is now at its lowest level ever. Today more than 42,000 bank branches offer these secure, low-cost and easy-access accounts. Learn more about Bank On.   Driving the Week Monday … The GameStop documentary “Apes Together Strong,” featuring our Victoria Guida, launches on Amazon … Tuesday … House Agriculture holds a hearing on Republicans’ crypto regulation bill at 10 a.m. … House Financial Services holds a hearing on how Treasury manages the debt, featuring testimony from GAO and CRS, at 10 a.m. … Wednesday … House Financial Services holds a hearing on the U.S. dollar’s status as the world’s reserve currency at 10 a.m.   GET READY FOR GLOBAL TECH DAY: Join POLITICO Live as we launch our first Global Tech Day alongside London Tech Week on Thursday, June 15. Register now for continuing updates and to be a part of this momentous and program-packed day! From the blockchain, to AI, and autonomous vehicles, technology is changing how power is exercised around the world, so who will write the rules? REGISTER HERE.     Driving the day Dimon’s not running — It was fun to speculate, but it may be time to put to bed the Jamie Dimon for President talk. “As he has said in the past, Jamie has no plans to run for office,” Joe Evangelisti, who leads JPMorgan’s corporate communications, told MM Sunday. “He is very happy in his current role.” Crisis averted — President Joe Biden on Saturday signed the bill suspending the debt-limit until 2025. Saudis will cut production — Saudi Arabia announced after a contentious Opec+ meeting Sunday that it plans to lower oil output by 1 million barrels per day, as major oil producers struggle to turn around declining prices. Economy The Fed’s conundrum: Where's the recession? — The WSJ’s Sarah Chaney Cambon outlines all the reasons why the U.S. doesn’t appear to be anywhere near a recession, including aggressive hiring, a stabilizing housing market and consumers who just won’t quit. The U.S. added a surprising 339,000 jobs in May, according to the Labor Department, giving the Fed another reason to keep raising rates this year. “I don’t think there’s any chance we’re in a recession,” University of Michigan Professor Justin Wolfers said in the Journal piece. A look at commercial real estate risks — Katy O’Donnell has a new piece on how Washington’s grappling with the looming financial threat of a commercial real estate downturn. “Am I worried? The short answer is yes,” Sen. John Kennedy (R-La.) said. “The long answer is hell yes.”   A message from the American Bankers Association:   Markets Fitch stays negative on the U.S. — Sam reports that a potential U.S. debt downgrade is still a risk after Biden and Congress agreed to reinstate the government’s borrowing authority. Fitch Ratings said Friday that it will maintain its negative rating watch for the U.S. because the experience of repeated political standoffs “lowers confidence in governance on fiscal and debt matters.”   DON’T MISS POLITICO’S HEALTH CARE SUMMIT: The Covid-19 pandemic helped spur innovation in health care, from the wide adoption of telemedicine, health apps and online pharmacies to mRNA vaccines. But what will the next health care innovations look like? Join POLITICO on Wednesday June 7 for our Health Care Summit to explore how tech and innovation are transforming care and the challenges ahead for access and delivery in the United States. REGISTER NOW.     On the Hill Mark your calendar for Powell — Fed Chair Jerome Powell will appear before House Financial Services June 21 and Senate Banking June 22, according to our Eleanor Mueller. That’s a week after the next FOMC meeting, where Fed officials have been signaling they might skip a rate increase. Powell was spotted by Punchbowl’s Jake Sherman at Saturday’s Dead & Company show in Virginia. (Chair Powell, I’ve tried to get into the Dead but it hasn’t clicked. Please send recommendations.) Regulatory Corner SEC drops cases after records snafu — The WSJ reports that the SEC dismissed 42 enforcement cases after discovering that agency employees improperly accessed legal records that should have been restricted. A message from the American Bankers Association: The banking system works best when it works for all Americans. To promote financial inclusion and expand access to banking services, America’s banks are joining the Bank On movement. Now available in more than 42,000 bank branches in all 50 states, low-cost Bank On-certified accounts give unbanked individuals a viable path toward long-term financial security. Learn about Bank On’s impact here.     Follow us on Twitter Mark McQuillian @mcqdc Ben White @morningmoneyben Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary Sam Sutton @samjsutton   Follow us

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