November 18, 2024
This week decoded
The week was dominated by speculation about what the incoming Trump Administration and Republican-controlled 119th Congress will mean for digital assets and blockchain policy.
The importance of energy to U.S. emerging tech industries was at the forefront of President-elect Trump’s nomination of North Dakota Gov. Doug Burgum (R) as Secretary of the Interior Department and head of a new National Energy Council. Meanwhile, all eyes are on the critical roles of Treasury Secretary and potential SEC and CFTC leadership.
Sen. John Thune (R-SD) was selected by Senate Republicans to serve as the next Senate Majority Leader. Leadership on Congressional committees critical to blockchain policy is beginning to take shape, with Sen. Tim Scott (R-SC) set to lead as Chair and Sen. Elizabeth Warren (D-MA) set to become Ranking Member of the Senate Banking Committee, Sen. Ted Cruz (R-TX) likely to lead the Senate Commerce Committee, and Rep. Brian Babin (R-TX) running unopposed to chair the House Science, Space and Technology Committee. Other key committees, such as House Financial Services and House Energy & Commerce, are facing contested races for the top chair.
With Congress’s return to DC, Congressional activity is ramping up on policies related to digital assets, including the introduction of principles for “a growing, successful community banking industry” from House Financial Services Subcommittee on Digital Assets Chair French Hill (R-AR), who also asked financial services regulators this week to halt all rulemaking actions. Meanwhile, within the Biden-Harris Administration, the IRS announced initial plans for information reporting by U.S. brokers of digital asset transactions by foreign customers in compliance with CARF. The FDIC released data on crypto use by banked and unbanked Americans and the GAO released findings on digital financial literacy. Eighteen state AGs joined a lawsuit asserting the SEC exceeded its authority in enforcement actions against crypto exchanges.
Read more below
Congress
Hearings and Meetings
- This week
- On November 19 the House Democrats will hold leadership elections.
- On November 20, the House Financial Services Committee will hold a hearing on “Oversight of Prudential Regulators.”
Legislation
- There was no relevant legislation introduced last week.
Correspondence
- French Hill (R-AR) sent a letter to the Treasury Department, Federal Deposit Insurance Corporation (FDIC), Federal Reserve, National Credit Union Administration (NCUA), Consumer Financial Protection Bureau (CFPB), Federal Housing Finance Agency (FHFA), Securities and Exchange Commission (SEC), and the Department of Housing and Urban Development (HUD) requesting they immediately halt all rulemaking actions in the final weeks of the Biden-Harris Administration. (Letter)(Press release)
Reports
- House Financial Services Subcommittee on Digital Assets Chair French Hill (R-AR) released a set of principles outlining “his support for a growing, successful community banking industry” including, “Regulatory Fairness, Transparency, and Right-Sizing: The Federal prudential regulators should not be able to order institutions to terminate a customer’s account without a material reason for doing so in order to reverse the weaponization of the government as demonstrated by Operation Choke Point. This political targeting has continued under the Biden-Harris Administration to go after industries like firearms and digital assets; Congress should fully investigate the conduct of agency personnel to find if their actions and policies were consistent with applicable laws, regulations, and policy, while the Trump Administration should officially halt and reverse this policy.” (Principles)(Press release)
Biden-Harris Administration
Internal Revenue Service (IRS)
- In remarks at a tax conference hosted by the Executive Enterprise Institute, an IRS official announced that the IRS plans to implement the OECD’s Cryptoasset Reporting Framework (CARF) by requiring digital asset transactions involving foreign customers to be reported by U.S. brokers on a schema rather than on a modified Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. The IRS is currently drafting proposed regulations to implement the CARF. (TaxNotes)
Federal Deposit Insurance Corporation (FDIC)
- The FDIC released findings from their annual National Survey of Unbanked and Underbanked Households, which included:
- Use of crypto was higher among banked households (5.0 percent) than among unbanked households (1.2 percent)
- Use of crypto also varied by household characteristics and was higher among higher-income households, more-educated households, younger households, Asian and White households, working-age households without a disability, and households with higher monthly income volatility. Differences by income level were especially pronounced: 7.3 percent of households with income of $75,000 or more used crypto, compared with 1.1 percent of households with less than $15,000 in income
- Among all households that used crypto, the vast majority held crypto as an investment (92.6 percent). Far fewer households used crypto in another way; for example, only 4.4 percent of households that used crypto did so to make purchases online (Report)
Government Accountability Office (GAO)
- GAO published a report on lessons from a June forum entitled “Financial Literacy in a Digital Age”on consumer digital financial literacy, including, “Digital products and services offer consumers improved experiences but also pose risks. These products and services enable personalized support, such as through advisers powered by artificial intelligence, to inform decision-making specific to a consumers financial situation. However, the ease and convenience of digital transactions can lead to risky behavior, such as investment in crypto assets. Additionally, participants said consumers face increased risks of fraud and scams, including phishing and unauthorized sharing of personal information. Consumers face challenges navigating the digital financial landscape. Consumers need both technical skills and traditional financial knowledge to make informed decisions about digital financial services, for example, to detect biased marketing and to avoid scams. Reliable financial information, such as information offered through government sources, is available online but is often underused. Participants noted that many financial technology (fintech) companies offering digital products and services are lightly regulated and consumer protections are limited. (Press release)
Securities and Exchange Commission (SEC)
- Eighteen Republican Attorneys General filed a suit against the SEC alleging the agency exceeded its authority in bringing enforcement actions against digital asset exchanges. (Complaint)
Trump-Vance Transition
- In his announcement naming North Dakota Gov. Doug Burgum (R) as Secretary of the Interior Department and head of a new National Energy Council, President-elect Donald Trump said, “With U.S. Energy Dominance, we will drive down Inflation, win the A.I. arms race with China (and others), and expand American Diplomatic Power to end Wars all across the World” and that expanding access to affordable energy would “win the battle for A.I. superiority, which is key to National Security and our Nation’s Prosperity.” (PoliticoPro)
Noteworthy Quotes and Events
ADMINISTRATION
Securities and Exchange Commission (SEC)
- In remarks at the Practising Law Institute’s 56th annual conference on securities regulation, SEC Chair Gary Gensler said, “This is a field in which over the years there has been significant investor harm. Further, aside from speculative investing and possible use for illicit activities, the vast majority of crypto assets have yet to prove out sustainable use cases.” He also reiterated the SEC focus “has been on some of the 10,000 or so other digital assets, many of which courts have ruled were offered or sold as securities” (CoinDesk)(CNBC)
- In response to a tweet about her November 1 remarks at the Wharton Fintech Series, SEC Commissioner Hester Peirce tweeted, “My point was simply that people inside & outside the agency need to be thinking now about what good crypto regulation looks like. We need good ideas to fuel a public discussion. In the meantime, small-scale pilot projects can yield useful insights.”
Federal Reserve
- In remarks at the Clearing House Annual Conference 2024 entitled “What Roles Should the Private Sector and the Federal Reserve Play in Payments?”, Fed Governor Christopher Waller said, “As a policymaker, I have applied that same question to issues ranging from bank regulation to monetary policy. For an example in the payments area, three years ago there was an increase in public discussion about creating a new payment instrument called a central bank digital currency (CBDC). The Federal Reserve Board was compiling a report and seeking public comment on the potential benefits and risks of the idea. In a speech I gave in August 2021, I asked, what problem would a CBDC solve? In other words, what market failure or inefficiency demands this specific intervention? In more than three years, I have yet to hear a satisfactory answer as applied to CBDC.”
CONGRESS
- When asked by Politico whether she would be willing to advance digital assets legislation next year, Sen. Elizabeth Warren (D-MA) said, “It depends on what it looks like. I haven’t seen anyone on the Banking Committee advance the argument that crypto should be excepted from the rules to prevent drug traffickers and terrorists from using any part of our financial system.” (PoliticoPro)
- On the potential for digital assets legislation in the lame duck, Rep. Warren Davidson (R-OH) said, “I’d definitely rather wait. I think we have a chance to do a better, more comprehensive approach in the new administration with a new Senate.” (PoliticoPro)
- On that topic, Rep. Wiley Nickel (D-NC) said, “I think the Republican approach under Trump is going to be to wait for the next Congress to do anything.” (PoliticoPro)
- On Face the Nation, Rep. Ro Khanna (D-CA) said of the U.S. general election and emerging technologies, “Well, first of all, get 70% of Silicon Valley still supported Vice President Harrison Democrats, but you’re right, that we had slippage and probably down 20 30% support Donald Trump, they have different reasons for doing it. Some of them were free speech, some of them want deregulation, some of what tax cuts, some of what AI got to be regulated, some of them were concerned about crypto. But I think what the Democrats need to remind folks of and I’ve reminded Elon of this is that Tesla got funding for President Obama, SpaceX got started because Ash Carter, under President Obama helped Ilan, get that facility. The Democrats are the party that has invested in the science and technology to help build Silicon Valley. And we can be the party that helps AI robotics, build new factories, build new industry in different parts of the country. When we argue policy, we have a better vision for how to get Americans and prosperity in a modern economy. And if we focus on that, I believe we will win back the majority and win back in 2028.” (Transcript)
- Sen. Bill Hagerty (R-TN) tweeted, “It is unfortunate that it came to this point, but I’m glad to see states—including Tennessee—taking a stand against Gary Gensler’s anti-crypto agenda.”
About Zero One Strategies
Zero One Strategies is a boutique government relations practice dedicated to navigating the complex landscape of U.S. federal policy in emerging technologies. As advancements in technology continue to outpace regulatory frameworks, Zero One Strategies aims to provide strategic guidance and bipartisan advocacy for innovators and businesses operating at the forefront of technological development.
The practice focuses on key areas such as artificial intelligence, blockchain, decentralized technologies, cybersecurity, data, and digital infrastructure, as well as the multiple policy issues impacting these sectors, including tax and financial services.
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