January 20, 2025

This week decoded

With today’s inauguration of President Donald Trump, the Trump-Vance Administration officially begins. As the new Administration seeks to fill key roles, questions about digital assets were raised in relation to hearings to consider the confirmation of President Trump’s cabinet nominees.

Treasury’s Semiannual Regulatory Agenda includes an updated FinCEN notice of proposed rulemaking on the “Clarification of the Requirement to Collect, Retain, and Transmit Information on Transactions Involving Convertible Virtual Currencies and Digital Assets With Legal Tender Status.” The United States, Japan, and the Republic of Korea issued a joint warning about cryptocurrency thefts by the DPRK cyber actors.

In Congress, the Senate Banking Chair and Ranking Member released separate priorities for their committee leadership in the 119^th Congress, including a focus on digital assets.

Axios reported that Sen. Ted Cruz (R-TX) will introduce a resolution next week to use the Congressional Review Act to overturn the IRS regulations imposing information reporting on DeFi brokers, with Sens. Cynthia Lummis (R-WY), Bill Hagerty (R-TN), and Tim Sheehy (R-MT) as cosponsors.

Politico reported that Senate Banking Chair Tim Scott (R-SC) and House Financial Services Chair French Hill (R-AR) are considering forming a bicameral working group of select members from Senate Banking, House Financial Services, and the Senate and House Agriculture Committees.

Read more below

Congress

Hearings

• Last week
  • On January 15, the Senate Energy and Natural Resources Committee held a hearing on the nomination of Chris Wright to be Energy Secretary.
  • On January 16, the Senate Finance Committee held a hearing on the nomination of Scott Bessent to be Treasury Secretary.
• This week
  • There are no relevant hearings this week.

Correspondence

• Sen. Cynthia Lummis (R-WY) sent a letter to Federal Deposit Insurance Corporation (FDIC) Chair Marty Gruenberg to cease and desist the alleged destruction of materials related to FDIC digital asset-related activities in preparation for Congressional oversight hearings. (Letter)(Press release)

• Lummis also sent a letter to the U.S. Marshalls Service requesting information about their planned sale of 69,370 Bitcoin seized from the Silk Road case. (Letter)

• In advance of his confirmation hearing before the Senate Finance Committee, Sen. Elizabeth Warren sent a letter to Treasury-Secretary nominee Scott Bessent with 130 questions for the record, including, “Bad actors are also increasingly turning to cryptocurrency to enable money laundering, sanctions evasion, and to finance major national security threats, such as Russia’s invasion of Ukraine, North Korea’s nuclear program, China’s sale of weapons parts to sanctioned nations, and ransomware attacks. Treasury recognized the growing threat of crypto and in November 2023, the agency published a term sheet that stated the tools that outlined five legislative proposals that would help Treasury combat illicit finance related to digital assets, including amending the Bank Secrecy Act (BSA) to include a new crypto-related category of “financial institution” that would include crypto exchanges, unhosted wallets, decentralized finance (DeFi), and validators on the blockchain. Should AML/CFT and sanctions programs include risk-based provisions reasonably designed to prevent money laundering or terrorist financing involving digital assets? a. Should the agency have a secondary sanctions tool that would allow it to sever fintech and crypto operators from U.S. relationships? b. Should OFAC have jurisdiction over dollar-denominated stablecoins? c. Should Congress extend Treasury’s BSA authority and the International Emergency Economic Powers Act (IEEPA) to foreign entities with U.S. touchpoints?” (Letter)

Reports

• Senate Banking Chair Tim Scott (R-SC) released his Banking Committee Priorities for 119^th Congress, including “Developing a Framework for Digital Assets: Under Chair Gensler, the SEC refused to provide clarity to the cryptocurrency industry, which has forced projects overseas. Moving forward, the committee will work to build a regulatory framework that establishes a tailored pathway for the trading and custody of digital assets that will promote consumer choice, education, and protection and ensure compliance with any appropriate Bank Secrecy Act requirements. The committee will also foster an open-minded environment for new, innovative financial technologies and digital asset products, like stablecoins, that promote financial inclusivity.” (Priorities)

• Senate Banking Ranking Member Elizabeth Warren (D-MA) published her Banking Committee priorities as an op-ed in the Wall Street Journal, entitled, “If Trump Wants to Unrig the Economy, I’m In” including “…we can establish common-sense rules for artificial intelligence, blockchain technology and FinTech to promote stability and ensure that innovation serves all consumers, investors and business—not only billionaires and big banks, and certainly not terrorists.” (Op-ed)

Biden – Harris Administration

State Department 

• The United States, Japan, and the Republic of Korea issued a Joint Statement on Cryptocurrency Thefts by the Democratic People’s Republic of Korea and Public-Private Collaboration, warning to the blockchain technology industry regarding the ongoing targeting and compromise of a range of entities across the globe by Democratic People’s Republic of Korea (DPRK) cyber actors. (Press release)

Treasury Department

• Treasury will publish in the Federal Register its Semiannual Regulatory Agenda, including an updated FinCEN notice of proposed rulemaking on “Clarification of the Requirement to Collect, Retain, and Transmit Information on Transactions Involving Convertible Virtual Currencies and Digital Assets With Legal Tender Status.” The description includes, “The Board of Governors of the Federal Reserve System and FinCEN (collectively, the ‘Agencies’) intend to issue a revised proposal to clarify the meaning of ‘money’ as used in the rules implementing the Bank Secrecy Act requiring financial institutions to collect, retain, and transmit information on certain funds transfers and transmittals of funds. The Agencies intend that the revised proposal will ensure that the rules apply to domestic and cross-border transactions involving convertible virtual currency, which is a medium of exchange (such as cryptocurrency) that either has an equivalent value as currency, or acts as a substitute for currency, but lacks legal tender status. The Agencies further intend that the revised proposal will clarify that these rules apply to domestic and cross-border transactions involving digital assets that have legal tender status.” The first NPRM was issued in October 2020 and a second NPRM is expected in 2025. (Federal register)(First NPRM)

Department of Energy

• Lawrence Berkeley National Laboratory released their 2024 Report on U.S. Data Center Energy Use, including a chapter on cryptocurrency electricity use concluding, “The insights from this work highlight the urgent need for enhanced monitoring and reporting frameworks in the cryptocurrency mining sector. While our methodology provides a reliable estimation approach, the industry’s opacity continues to hamper precise forecasting and planning. As digital assets become increasingly mainstream, policymakers and utilities must develop more sophisticated tools for tracking and managing mining-related energy demand to ensure grid stability and meet decarbonization goals.” (Press release)(Report)

Consumer Financial Protection Bureau (CFPB)

• The CFPB published a Request for Information Regarding the Collection, Use, and Monetization of Consumer Payment and Other Personal Financial Dataseeking comments on “how companies that offer or provide consumer financial products or services collect, use, share, and protect consumers’ personal financial data, such as data harvested from consumer payments.” The comment period ends April 11. (Notice)

Trump – Vance Transition

• For National Economic Council (NEC) staff, the Trump transition team has named Robin Colwell for Deputy Assistant to the President for Economic Policy/Deputy NEC director; Nels Nordquist for Deputy Assistant to the President for Economic Policy/and Deputy NEC Director for International Economics; Paige Willey for Deputy Assistant to the President for Economic Policy/Deputy NEC director; Ryan Baasch for Special Assistant to the President for Economic Policy; Emory Cox for Special Assistant to the President for International Economic Relations; Cale Clingenpeel for Special Assistant to the President for Economic Policy; Andrew Lyon for Special Assistant to the President for Economic Policy (tax); Jeff Wrase for Special Assistant to the President for Economic Policy (financial services); and Joel Zinberg for Special Assistant to the President for Economic Policy (healthcare)

• In his confirmation hearing before the Senate Finance Committee, Treasury Secretary-nominee Scott Bessent referenced having discussed digital assets and illicit finance during his introductory meeting with Sen. Ben Ray Lujan (D- In response to a question from Sen. Marsha Blackburn (R-TN), Bessent responded, “On CBDCs, I see no reason for the US to have a central bank digital currency. In my mind, a central bank digital currency is for countries who have no other investment alternatives.”

• In the confirmation hearing for Energy Secretary-nominee Chris Wright before Senate Energy and Natural Resources Committee, Sen. Steve Daines (R-MT) asked, about supporting the energy needs of “AI, Blockchain technologies, quantum computing,” to which Wright responded it was a top priority.

Noteworthy Quotes and Events

ADMINISTRATION

Securities and Exchange Commission (SEC)

• In an interview with Politico, SEC Chair Gary Gensler said, “All of our enforcement agenda — 100 percent of our enforcement agenda — in some way helps promote integrity so people can trust and rely on the stock market, the bond markets, the mutual funds, the hedge funds. I don’t think you can have that confidence right now in crypto.” When asked about crypto-related systemic risk, he said, “It’s still a relatively small part of this country’s capital markets, and it’s still a relatively small part of the worldwide capital markets — give or take, 1 percent. Actually, it’s of very modest interest to investors. … It’s not that integrated into the banking system. Having said that, if you look back to the regional bank failures here in the U.S., two of those banks had significant business with the crypto field. The risk of the financial system in your hypothetical of a possible downturn in crypto also goes to investors’ trust in our system. To the extent investors are harmed by fraudsters and scam artists, they can lose confidence in the capital markets themselves. … You need a mixture of fundamentals and sentiment — but you’ve got to come back to fundamentals. There’s [10,000] or 15,000 projects in this crypto field. They’re going to have to prove their real use cases and what returns they [have] other than just a speculative token that somebody else will pay you more for. Ultimately, somebody is going to hold it because they’re getting a return. And short of that, a lot of these projects will fail.” (Politico)

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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