Crypto’s desperate turn to Europe

Feb 27, 2023

Presented by Ripple

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Want to know how rough things are getting for crypto in the U.S.? Industry leaders are starting to hold up the European Union as a potential bastion for digital currency.

“We fully expect Europe to become a natural hub for responsible participants going forward,” says Susan Friedman, international policy counsel with the embattled crypto firm Ripple.

Sure, Europe has been at the vanguard of cracking down on Big Tech and crypto. It played a major role in the demise of Facebook's failed stablecoin, known as Libra and later Diem.

But as POLITICO’s Bjarke Smith-Meyer and I report, the European Union is about to pull ahead of the U.S. with a set of formal laws tailored to crypto businesses. It’s in stark contrast to the patchwork of state and federal rules in America, where Washington regulators are increasingly enforcing old-school banking and investment laws on digital asset firms. It’s going to be the status quo here for the foreseeable future, with U.S. lawmakers at odds over whether to embrace or curtail the digital asset market.

The “regulatory clarity” crypto lobbyists say they want? The EU will have something to offer on that front when its new rules take effect next year. European lawmakers like Stefan Berger are promoting the set of policies — known as Markets in Crypto-Assets, or MiCA — as “the best framework in the world in which companies can develop.”

This is already becoming a talking point for some in the U.S. crypto lobby, which is seriously lacking political capital after the market nearly collapsed. Advocates are looking for anything to light a fire under Congress.

But let’s get real. Dante Disparte, chief strategy officer at stablecoin issuer Circle, isn’t buying the pitch that the EU will become a safe haven. He would know from experience. Disparte was one of the leaders of Libra, which triggered the EU's move to enact new crypto laws after officials smashed Facebook’s ambitions.

He’ll take U.S. regulatory ambiguity over the EU model, which he described as “five years of hurry up and wait” — even if America’s patchwork approach means it’s “stuck in a fintech constitutional crisis.”

“The rest of the world is looking for the puff of white smoke — what policy posture the United States will take,” he told MM. “And to date, we have not concluded that papal conclave on fintech.”

What should we cover this week? — Send tips to zwarmbrodt@politico.com and ssutton@politico.com.

Driving the Week

Monday … Fed Governor Philip Jefferson talks inflation during a virtual Harvard lecture at 10:30 a.m. … House Rules sets up a disapproval vote on DOL’s ESG rule at 5 p.m. … Tuesday … House Financial Services votes on a data privacy revamp and other bills at 10 a.m. … Senate Banking holds a hearing on sanctions and export controls at 10 a.m. … Wednesday … Senate Budget holds a hearing on the economic risks of rising seas at 10 a.m. … Sen. Bernie Sanders talks about his new book, “It’s OK to Be Angry About Capitalism,” at The Anthem at 8 p.m. … Thursday … Fed Governor Chris Waller discusses the economy at a Mid-Size Bank Coalition of America virtual event at 4 p.m. … Friday … Daniel Hornung, Special Assistant to the President for Economic Policy, talks first-time homebuyers at the Urban Institute at 10 a.m. …

STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president’s ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.

Driving the Day

Congress is back — The House and Senate are returning from a late-February break and have plenty cooking on the financial policy front. A couple of things to watch:

House Financial Services will hold its first legislative votes of the Patrick McHenry era on Tuesday.

The main event will be McHenry’s data privacy revamp. The bill proved tricky for him to put together.

McHenry cut a section that could have changed how financial privacy rules are enforced, after Republicans were at odds over whether to give more power to the CFPB or to let private lawyers sue companies for violations. The final version of the bill is expected to be opposed by Democrats, in part because it would preempt state-level privacy laws.

House Republicans will ramp up their anti-woke campaign. They plan to hold a House vote this week on a Congressional Review Act resolution that would nullify a Labor Department policy that allows retirement plan managers to consider ESG factors.

The GOP-led version in the Senate has support from at least one Democrat, Sen. Joe Manchin(D-W.Va.), and may attract more bipartisan backing from moderates seeking some political distance from the Biden administration. Even if the House and Senate pass it, President Joe Biden would likely veto.

Dozens of groups including the AFL-CIO, the Interfaith Center on Corporate Responsibility, Public Citizen and Americans for Financial Reform are warning lawmakers against nixing the rule.

The AFL-CIO told lawmakers in a letter that “the consideration of ESG factors helps protect the hard-earned retirement savings of working people.”

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Economy

Experts at odds over the direction of the U.S. economy — The National Association for Business Economics is out with its latest survey of macroeconomic forecasters. NABE found “significant divergence” in their views. Here are a few takeaways:

— Forecasters continue to expect tepid U.S. GDP growth this year and a 2024 rebound but “expectations are widely dispersed.”

— A U.S. recession is still expected this year but is now seen as happening later than experts thought in December.

— An overwhelming majority expect the debt ceiling to be raised or suspended, with only 2 percent anticipating a breach.

Ex-Biden official: Markets are complacent on the debt ceiling — Daleep Singh, who served as Biden’s deputy national security adviser for international economics until last year, said Friday that markets need to start playing the victim to get Congress to act on raising the debt limit.

“They have to produce a sea of red on their Bloomberg screens, because politicians … need to see pain in order to have cover,” he told a room of central bankers, economists and investors, Victoria Guida reports.

Migrant minors in the U.S. make up a ‘new economy of exploitation’ — The New York Times released an investigation this weekend about migrant children who are filling some of the most punishing jobs in the U.S., including as roofers and slaughterhouse workers.

JOIN POLITICO ON 3/1 TO DISCUSS AMERICAN PRIVACY LAWS: Americans have fewer privacy rights than Europeans, and companies continue to face a minefield of competing state and foreign legislation. There is strong bipartisan support for a federal privacy bill, but it has yet to materialize. Join POLITICO on 3/1 to discuss what it will take to get a federal privacy law on the books, potential designs for how this type of legislation could protect consumers and innovators, and more. REGISTER HERE.

Crypto

First in MM: Coinbase crypto poll — Sam reports that Coinbase is launching a new campaign touting crypto’s practical uses. A Morning Consult poll commissioned by the exchange found that 80 percent of Americans believe the financial system is unfair and that more than two-thirds believe it’s in need of major changes or a complete overhaul. Twenty percent of Americans own crypto, but 57 percent of those polled said they were unlikely to buy, sell or trade it in the next year.

Exchanges flagged for not enforcing Russia sanctions — Crypto exchanges Huobi and KuCoin allow customers to transact with debit cards issued by sanctioned Russian banks, according to a blockchain analytics firm.

A message from Ripple:

Fly Around

Reporter hacks bank account with fake AI voice — Vice: “Some banks tout voice identification as equivalent to a fingerprint, a secure and convenient way for users to interact with their bank. But this experiment shatters the idea that voice-based biometric security provides foolproof protection in a world where anyone can now generate synthetic voices for cheap or sometimes at no cost.”

Larry Summers: Russia oil price cap should be tightened — Bloomberg: “Economic sanctions on Russia ‘haven’t really bitten that hard’ because countries such as China, India and Turkey haven’t joined in, Summers said in an interview on CNN’s ‘Fareed Zakaria GPS’ broadcast Sunday.”

U.S. corporate giants plan China expansions — WSJ: “Large American companies from fast food to high-end fashion are increasing their bets on China’s consumers in anticipation of a postpandemic rebound for the world’s second-biggest economy.”

People moves — Ryann DuRant is now the senior communications advisor for Senate Banking ranking member Tim Scott (R-S.C.). She was previously communications director for Sen. Tommy Tuberville (R-Ala.) and is an alum of USDA, Sen. John Cornyn (R-Texas) and the House.

A message from Ripple:

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