Good morning and happy Friday. In a historic week for crypto policy, the House passed a standalone crypto bill for the first time, and with bipartisan support.

Top Points

The House passed a resolution to repeal SAB 121, but the White House said it would veto the bill if it passes the Senate.
Rep. Sean Casten (D-IL) introduced a bill that would stop financial institutions from transacting with funds that have gone through a mixer for two years, while Treasury would study mixers and other privacy-enhancing tech before reporting to Congress with policy recommendations.
At a House Financial Services subcommittee hearing, Democrats supported the SEC's enforcement campaign against crypto, while Republicans focused more generally on capital markets, due process, and innovation.
Former President Trump sought to contrast his crypto position from the Biden Administration's, telling an audience at Mar-a-Lago that he is "good with [crypto]," he wants to keep innovation in the U.S., and "if you're in favor of crypto, you better vote for Trump."

House Passes SAB 121 Repeal

On Wednesday, the House passed H.J. Res. 109, a resolution to overturn the SEC's Staff Accounting Bulletin 121 ("SAB 121") by a 228-182 vote.

21 Democrats voted yes, despite Democrat leaders in the House and White House urging a no vote.

Background

The SEC issued SAB 121 on April 11, 2022. SAB 121 requires public reporting companies who provide custody services for crypto assets to record those assets on their balance sheet and disclose related legal, regulatory, and technological risks.

In October 2023, GAO concluded that SAB 121 was a rule, and thus subject to the Congressional Review Act ("CRA"), despite the SEC maintaining it was mere guidance. Under the CRA, Congress can rescind rules through a CRA resolution of disapproval, like H.J. Res. 109.

Arguments For & Against Repeal

Republicans and Democrats supporting repeal argued SAB 121 hurts digital asset users by effectively prohibiting highly-regulated and experienced custodians, like banks, from providing custodial services to customers. Supporters also focused on process concerns, noting the SEC did not follow notice and comment procedures for rulemaking under the APA, and, according to the GAO, violated the CRA by not submitting the rule to Congress when it was first published.

One particularly notable yes vote was Rep. Yadira Caraveo (D-CO), Ranking Member of the House Ag subcommittee on digital assets.

Congresswoman Yadira Caraveo, MD

@RepCaraveoMD

Today I voted to override a decision by @SECGov's Staff Accounting Bulletin that discourages banks from serving as custodians for consumers' crypto assets. Consumers continue to invest in crypto, and they’re safest when well-regulated entities such as banks hold their assets.

House Democrats voting against the repeal argued that H.J. Res. 109 would limit the SEC's ability to provide crypto-related accounting guidance and reduce customer protections.

What's Next?

The resolution still needs to pass the Senate, where it is uncertain when it will get a vote.

Senator Cynthia Lummis's (R-WY) companion resolution gained momentum this week, adding 14 cosponsors and garnering enough signatures to get discharged from the Senate Banking Committee.

Procedurally, CRA resolutions of disapproval are unique from typical legislation, as any Senator can make a motion to proceed to consider the resolution, and they only require a simple majority, not the 60 votes often required to end debate on a bill.

Here's a helpful CRS Report with more wonky background on the CRA process.

If the resolution clears the Senate, the White House says it would veto the measure.

It would take a two-thirds majority vote in the House and Senate to overturn a Presidential veto.

Here's the White House's statement of opposition to repealing SAB 121:

Rep. Casten Intro's Anti-Digital Asset Mixer Bill

On Tuesday, Rep. Sean Casten (D-IL) introduced the "Blockchain Integrity Act" along with Reps. Bill Foster (D-IL), Brad Sherman (D-CA), and Emanuel Cleaver (D-MO).

Bill Text.

The bill would:

Place a two year moratorium on financial institutions handling, using, or transacting with funds that have gone through a digital asset mixer.
Direct federal agencies to study the illicit and legitimate uses of mixers, privacy coins, and anonymity-enhancing technologies.
- Treasury would then report to Congress on its findings and present legislative and regulatory recommendations for dealing with illicit finance concerns.

Key Definitions:

Financial institution is defined to track the definition of financial institution under the Bank Secrecy Act (e.g., banks, exchanges, and money services businesses).
Digital asset mixer:

Privacy coin:

Anonymity-enhancing technologies means "software, products, or services that facilitate digital asset transactions with enhanced anonymity, as defined by the Financial Crimes Enforcement Network."

What's Next?

While the prohibition is unlikely to pass, the bill shows the issue of mixers is unlikely to go away. While crypto advocates point to the transparency of blockchain transactions as a boon to law enforcement, there has been bipartisan concern on the Hill over the extent to which mixers negate this benefit.

So while lawmakers disagree over how to address this concern, there has been bipartisan support for studying the extent to which mixers are used for legitimate versus unlawful purposes as a first next step.

For example, Senators Kirsten Gillibrand (D-NY), Cynthia Lummis (R-WY), Elizabeth Warren (D-MA), and Roger Marshall (R-KS) proposed an amendment to the NDAA last year that would have required a similar study, but it was dropped from the final bill.

Separately, FinCEN is currently considering a proposal to impose heightened recordkeeping and reporting requirements on U.S. financial institutions for transactions they know or suspect involve mixing and a foreign jurisdiction. (More background and industry concerns re: this proposal in 1.26.24 Newsletter).

SEC Enforcement Hearing

On Tuesday, the House Financial Services Subcommittee on Capital Markets held a hearing on SEC Enforcement: Balancing Deterrence with Due Process.

Key Takeaways:

Democrats spent more time on crypto than Republicans, with several Members pointing to the high volume of crypto enforcement actions as support for the view that crypto is rife with noncompliance and that most digital assets are securities.
Republicans focused more on concerns impacting capital markets as a whole, but there were a few crypto-related mentions highlighted below.

Here are the crypto-related Member highlights:

Rep. Brad Sherman (D-CA) said he supports more regulatory clarity for crypto - but only if it gives the SEC absolute authority over crypto.

Rep. Maxine Waters (D-CA) (Ranking Member) cited Judge Failla's recent decision in SEC v Coinbase to support the view that crypto assets "fall comfortably" under existing securities laws. Witness John Reed Stark agreed with this assessment.

Rep. Bill Huizenga (R-MI) flagged the "abuse of power" in the SEC v. Debt Box case and flagged concerns with the SEC’s Wells Process.

In particular, Rep. Huizenga took issue with how a Wells Notice can leave companies in limbo for long periods of time without knowing if or when an enforcement action will ever come.
Rep. Huizenga also cited Robinhood’s and Coinbase’s unsuccessful attempts to engage and register with the SEC as why he supports Chair McHenry’s work on market structure legislation.

Rep. Sean Casten (D-IL) flagged reports of Tether being used for illicit finance, while also previewing his Blockchain Integrity Act discussed above.

Rep. Wiley Nickel (D-NC) took issue with the SEC sending Robinhood a Wells Notice, despite the company's cautious approach of listing only select assets and trying to register with the SEC.

Rep. Nickel is worried the SEC's enforcement approach is driving U.S. entrepreneurs overseas.

Rep. Zach Nunn (R-IA) asked about recent SEC enforcement actions' impact on capital formation and innovation.

Witness Nick Morgan said the SEC's enforcement agenda is hostile for capital formation, while Witness Paul Eckert said it has chilled innovation because less products are coming to market as a result of added uncertainty.

Sidebar: The day of the hearing, SEC Chair Gensler went on CNBC for a live interview where he reiterated his stance on crypto:

“The field of crypto assets - without prejudging any one of them – many of those tokens are securities under the law of the land as interpreted by the U.S. Supreme Court, so we follow that law. And you the investors are not getting the required or needed disclosures about those assets.”

Look Ahead

Hearings

House & Senate oversight hearings of Federal banking regulators - including FDIC Chair Martin Gruenberg - next week.
- HFSC Hearing: 10AM - Wednesday, May 15
- Senate Banking Hearing: 10AM - Thursday, May 16
- Backdrop: HFSC Chair McHenry, Senate Banking Ranking Member Tim Scott, and several other Members of Congress - including Democrat Bill Foster (D-IL) - have called on FDIC Chair Gruenberg to resign following Cleary Gottlieb's investigative report finding:
  - "[F]or far too many employees and for far too long, the FDIC has failed to provide a workplace safe from sexual harassment, discrimination, and other interpersonal misconduct."
    - See Full Report Here.

Votes

Politico's Eleanor Mueller reports two bills may get votes on the House floor at the end of May (likely week of May 20-24, as Congress will not want to miss the Memorial Day recess slated for the following week):
- (1) FIT 21 - a market structure bill providing tailored registration and disclosure rules for token issuers and intermediaries, and drawing jurisdictional lines between the SEC and CFTC based on a digital assets' functionality and decentralization (and more).
- (2) the CBDC Anti-Surveillance State Act - a bill to prohibit the Fed from issuing a CBDC directly or indirectly to individuals.
- While the bills aren't expected to pass the Senate, roll call votes on the bill would force Members to go on record in an election year.

Events

Tuesday, May 14 - DC DAO hosts ETH DC.
Wednesday, May 15 - The Digital Chamber hosts a DC Blockchain Summit.

Quick Hits

New Legislation

Reps. Nancy Mace (R-SC) & Byron Donalds (R-FL) introduced legislation to direct the Commissioner of U.S. Customs and Border Protection to develop a public blockchain platform to secure and share data related to border security.
- The public blockchain platform would be used for document verification, supply chain security, border control personnel management, and real-time data sharing.
- Text.

Election 2024

On Wednesday, Trump courted the crypto voter, telling his audience at Mar-a-Lago:
- "Biden doesn't even know what it [is]...Gensler is very much against it. The Democrats are very much against it...A lot of people are very much for it...and I'm fine with it. I want to make sure its good and solid and everything else, but I'm good with it...If you're in favor of crypto, you better vote for Trump."
  - Clip.
Rep. Wiley Nickel (D-NC) isn't ready to concede the crypto vote to Republicans:

Rep. Wiley Nickel 🇺🇸

@WileyNickel

We cannot hand this issue to the Republicans.

Digital assets shouldn’t be a partisan issue. I’m going to continue working in a bipartisan way to support Web3 so that we can protect American consumers and keep #blockchain and #crypto innovation in the United States.

Eleanor Terrett

@EleanorTerrett

The two presidential frontrunners planted their flags on very different sides of the #crypto debate today.

@POTUS made clear he would side with @SenWarren and @GaryGensler by continuing to support the @SECGov’s regulation by enforcement.

@realDonaldTrump said he would stop the…

Digital Currency Group and Harris Poll published a survey on crypto voter analytics in swing states.
- Key Findings:
  - 1 in 5 registered voters in battleground states consider cryptocurrency a major issue in the 2024 election.
  - 76% of swing state voters surveyed said crypto has had a positive impact on their financial well-being.
  - 48% of registered voters in swing states agree with this statement: "I don't trust candidates that interfere with crypto."
  - 1 in 3 of registered voters in swing states believe that crypto levels the playing field for building financial health.
- Press Release.
- Full Findings.

SEC

SEC sends Wells Notice to Robinhood Crypto.
Robinhood CEO, Vlad Tenev, responds:

Vlad Tenev

@vladtenev

Over the last three years, we’ve reached a state of regulatory onslaught that is harmful to American companies and consumers. The SEC’s continued attack on crypto, coupled with recent rule proposals like the one related to predictive data analytics, mark yet another improper…

Rep. John Rose (R-TN) sees this action as another reason to pass FIT 21:

Congressman John Rose

@RepJohnRose

The @SECgov exceeded its mandate to protect investors and maintain fair, orderly markets by issuing a Wells Notice to @RobinhoodApp, a precursor to enforcement action.

I'm proud to help lead the effort to provide clarity by passing the FIT for the 21st Century Act so that rogue…

CFTC

CFTC Chair Behnam told Politico that the uncertainty over ETH's regulatory status "is just further evidence of the need for clarification from Congress."
- More in yesterday's Morning Money by Zachary Warmbrodt & Declan Harty.

Stablecoins

Nic Carter evaluated the state of academic and policy discourse around stablecoins in a new Medium post.
- "Five perspectives on stablecoins."

Trivia

This Week's Q:

What was the last piece of legislation to overcome a Presidential veto?
- Send answers to gsleonardo@caphillcrypto.com.

Thank you for reading and please enjoy your weekend.

-GSL

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