BitOoda Regulatory Analysis, 12/10/20: Will Congress take U.S. crypto regulation in the wrong direction?

One step forward, two steps back — the familiar pattern of the U.S. digital asset regulatory journey continues.

The SEC this week escalated the organizational position of its Strategic Hub for Innovation and Financial Technology (FinHub) and last month issued a no-action letter (only its third such letter to date) to the developers of Ethereum-based token VCOIN — positive indications of the Commission’s intent to prioritize and continue to bring clarity to the digital asset space.

· We agree with the views of other regulatory followers that making FinHub a standalone SEC office reporting directly to the Chair reflects the agency’s belief in the significance of digital assets to the evolution of the country’s financial regulatory system.

· The VCOIN no-action letter is significant because, as noted by Latham & Watkins, it is “the first to permit users to transfer a token outside of its closed platform to non-users and for any token holder to be able to exchange the token for fiat currency from the token issuer.”

However, Congressional Democrats seem to have started a campaign to undo some of the key advances that have been achieved this year, with the introduction of a new bill that would impose restrictions on stablecoin issuers, calls for President-elect Biden to rescind permissions for banks to custody cryptocurrencies, and the publication of a letter to the Acting Comptroller of the Currency criticizing the OCC’s focus on digital assets.

· The introduction of the STABLE Act would make it unlawful “for any person to issue a stablecoin or stablecoin-related product, to provide any stablecoin-related service, or otherwise engage in any stablecoin-related commercial activity” without a federal banking charter. The bill’s proposal drew swift opposition by congressional blockchain proponents and advocates such as Coin Center.

· Congresswoman Maxine Waters, Chair of the House Financial Services Committee, sent Biden a letter with a list of regulatory and administrative actions by the Trump administration that Biden should rescind. Among them were the OCC’s determinations that banks are permitted to provide custody services for cryptocurrencies and stablecoin-related services. Those policies also were the subject of a letter sent to Acting Comptroller Brian Brooks by the same representatives who sponsored the STABLE Act, in which they criticized Brooks’ focus on digital assets and his recent policy decisions in the space.

While these actions signal the continued existence of anti-crypto sentiment on Capitol Hill that will remain in the 117th Congress, a strong bipartisan group continues to promote measures that would advance regulatory clarity and potentially put in place a more comprehensive legal foundation for the country’s digital asset framework. The group most recently asked the SEC to clarify the requirements for firms to custody digital assets and to act as broker dealers.

Regardless of the directions in which the political winds will blow in D.C., we at BitOoda will continue to offer compliant solutions and to drive the evolution of digital asset financial services. Through our approved and regulated Broker Dealer and Introducing Broker, as well as our numerous regulatory licenses and qualifications, we offer a suite of sophisticated and compliant products and services to help our clients optimize their digital asset positions and implement sound risk management strategies.