November 11, 2024
This week decoded
Congress returns to Washington, DC, this week with a full agenda to close out the 118th Congress. For months, the question of whether digital assets-related legislation would be considered in the lame duck has been dismissed with “it depends on what happens in the election.” Now that the 119th Congress is coming into view, with a 52-47-1 Republican majority in the Senate and a potential Republican majority in the House, in addition to an incoming Republican White House, that answer is now “it depends on what Democrats prefer to cut deals on in the waning days of their Senate control and what Republicans prefer to own in their upcoming majority.”
Among those issues are stablecoin legislation and market structure regulation; comments by key policymakers on their lame duck prospects are included below.
The National Defense Authorization Act (NDAA), as part of the lame duck agenda, has historically been a reliable vehicle for emerging and decentralized tech policy to pass into law, and digital assets provisions have been considered within NDAA in previous years. In the coming weeks, we will watch how those discussions progress.
Looking ahead, stay tuned for a full analysis of how the new Congress and Trump Administration could impact digital assets and blockchain policy next year and beyond.
Read more below
Congress
Hearings and Meetings
- Last week: Congress is in recess until November 12.
- This week: On November 13, 2024, the House and Senate Republican Caucuses will hold leadership elections.
- Upcoming: Potential House Financial Services and Senate Banking Committee hearings with banking regulators
Legislation
- Congress is in recess until November 12.
Correspondence
- There was no relevant correspondence this week.
Biden-Harris Administration
Internal Revenue Service (IRS)
- Within its 2024 Agency Financial Report, the IRS discussed digital assets in multiple areas, including:
- Seized property valuation: “Seized property value, other than monetary instruments, is accounted for in criminal investigation records until the property is forfeited, returned, or otherwise liquidated. Valuation of property seized under the Internal Revenue Code is based on the taxpayer’s equity at the fair market value less any third-party liens. Forfeited intangible assets are recognized at fair market value at the time of forfeiture with an offsetting deferred revenue. Current federal accounting standards define cryptocurrency and digital assets as nonmonetary instruments to be recognized at fair market value at the time of seizure or forfeiture. Only central bank digital currencies are treated as monetary instruments.”
- Tax compliance: “IRS Criminal Investigation has taken advantage of analytics tools to address virtual currency noncompliance. During Fiscal Years 2018 to 2023, it investigated 390 cases involving virtual currency and completed 224 cases where it recommended prosecution.” And “The number of taxpayers using virtual currency as a payment method is growing. Each time a taxpayer uses virtual currency as a medium of exchange, there may be taxable consequences. The IRS has seen an increase in virtual currency for nefarious endeavors or to avoid tax reporting obligations. However, the anonymity of virtual currency complicates the IRS’s enforcement efforts. In FY 2024, the IRS took advantage of various analytics tools and began developing a strategic plan to address virtual currency noncompliance, including a process to safeguard and dispose of digital assets. This process involves transferring digital assets from a target’s wallet to a government-owned hard wallet, which is a physical device that houses the digital asset. The final step of this process involves liquidating the assets and depositing the proceeds into the Treasury Forfeiture Fund.”
- TIGTA priorities: “…we will assess the processes for the safeguarding and disposition of digital assets seized by IRS Criminal Investigation as well as for identifying and recovering fraudulent ERC payments after they complete IRS processing.” (Report)
Trump-Vance Transition
- Politico reported that Gail Slater and Michael Kratsios will lead tech policy in the Trump transition. Kratsios served in the first Trump White House as chief technology officer and helped draft Trump’s 2019 artificial intelligence executive order. Slater served as economic policy advisor to in the office of Sen. JD Vance and served as a special assistant to then-President Trump on tech, telecom and cybersecurity issues. (PoliticoPro)
Noteworthy Quotes and Events
ADMINISTRATION
Securities and Exchange Commission (SEC)
- SEC Commissioner Hester Peirce delivered remarks about the SEC’s approach to regulating the digital assets sector as part of the Wharton Fintech Series, including:
- On SEC approach to crypto: “… the SEC generally has not had an open mind when it comes to crypto. Instead, the Commission has used its enforcement powers to make crypto innovation a perilous occupation. Registration has proved impossible for all but a handful of crypto companies. Rather than working with crypto market intermediaries and token issuers to facilitate registration, we have brought enforcement actions for failure to do the impossible: register with a Commission that has failed willfully to articulate a viable path to registration. Settled enforcement actions almost always entail severe harm to the crypto project, stripping away key functionalities, or forcing an end to doing all or most business in the United States.”
- On the benefits of a “micro-innovation sandbox”: “In addition to providing guidance where it is needed, one way to assuage the instability, uncertainty, and fear that chills innovation is an experimental space of the sort I proposed earlier this year. I proposed that firms, after making a notice filing with the SEC, could perform certain activities under a self-selected set of regulatory conditions and consistent with statutory fraud prohibitions and pre-specified activity ceilings.” (Prepared remarks)
- Keith Cassidy, Acting Director of the SEC Division of Examinations, delivered remarks to the 2024 National Compliance Outreach Seminar in which he said, “In today’s market environment, not only are we conducting examinations in traditional areas, but we’re also examining for compliance with newly effective rules, looking ahead to changes in technology, dealing with some of the same cyber issues that each of you face every day, and considering the implication of recent advances in crypto assets and artificial intelligence.” (Prepared remarks)
CONGRESS
- In an interview with Politico, Rep. Andy Barr (R-KY) said, “We’re anxiously hoping that we can get some of the digital assets agenda done in the lame duck, and if that work is left undone, then we need to prepare that for the next Congress.” (PoliticoPro)
- Speaking about how current House Republicans could approach FIT21 with a potential Republican-controlled Congress next year, Rep. Bill Huizenga (R-MI) said, “It’s kind of like, why wouldn’t we wait for something better? Even though, unfortunately for Patrick, this might be an end to what is a well-deserved, significant, legacy policy.” (PoliticoPro)
- In an interview with Politico, House Financial Services Ranking Member Maxine Waters (D-CA) said, “All of the financial systems that operate in this country really are going to have to be revolutionized. It’s going to take more interaction, more communication, and less attacks that we do on each other.” (PoliticoPro)
- On Waters, Chair Patrick McHenry (R-NC) said, “What she has recognized for digital asset market structure is with two-thirds support in the full House, that it is a new day, and the politics of the loud, progressive, anti-Wall-Street rhetoric is disconnected from crypto policy.” (PoliticoPro)
- Rep. Bill Foster (D-IL) said of Democrats, “We’re all in favor of financial innovation, but just don’t want to see that being used to cause … harm.” (PoliticoPro)
- Rep. Mike Flood (R-NE) issued a press release highlighting remarks made by Rep. Andy Barr (R-KY) at the Flyover Fintech conference. Speaking about Republican legislative priorities and financial services innovation, Barr said, “We need market structure for digital assets. We need that certainty and stability there… a regulatory framework so that we can be the destination for crypto investment in the United States. We also need a stablecoin regulatory regime.” (Press release)
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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