Welcome to State of Crypto, a CoinDesk newsletter that covers the interface between cryptocurrency and government. I am your host, Nikhilesh De.
Are Governments More Worried About Crypto Growth? Two countries have already announced bans related to crypto, though this may be an extension of previous efforts to control space – and their own economies – rather than new initiatives
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The crackdown begins (again)
In the past few weeks, both India and Nigeria have been making noise about banning crypto industry participants from accessing the traditional banking sector. This could be a sign of renewed government action against space.
Why it matters
Bitcoin and subsequent cryptocurrencies should be censorship-resistant, stateless and a tool of economic freedom. Citizens in Belarus and Nigeria used Bitcoin to raise funds for those who lost their jobs or otherwise had an impact as a result of protesting against authoritarian regimes. People in other countries use cryptocurrencies to inexpensively transfer value across borders.
But the crypto space may not be mature enough to actually achieve these goals – at least not completely. Ray Dalio, head of the major hedge fund Bridgewater Associates, said the government ban could have a materially negative impact on the adoption of cryptocurrencies, and we are actually seeing governments trying to enact or enforce strict regulations.
Break it off
The Indian government was considering a bill late last month banning private cryptocurrencies and defining "private" as any cryptocurrency that is not supported by the state. The bill, presented to the Lok Sabha, the lower house of India's parliament, also proposed that India could adopt its own central bank digital currency (CBDC), issued by the Reserve Bank of India (RBI), the country's central bank has been .
I notice two details here: The first is that the RBI tried to restrict cryptocurrencies when they told banks that they would not be able to provide services for crypto companies in 2018. That ban was later lifted by the country's Supreme Court, despite RBI vowing to fight the ruling. This new bill, which was also introduced in the Rajya Sabha (House of Lords), could be a natural evolution of this political goal that would leave the force of the law behind.
The second detail is that the Indian government has tried to control its financial system before. In 2016, the government demonstrated nominally the 500 and 1,000 pound notes, about 86% of the currency in circulation, to eradicate “black money” or cash from illegal means. In 2018, India's Aadhaar system decided that every resident effectively needed access to the biometric identification platform to buy a cellphone or access banking services.
One continent away, the Central Bank of Nigeria (CBN) published a document stating that banks cannot offer crypto exchanges with services. Binance and Bundle Africa immediately announced that they would suspend deposits.
Here, too, the CBN says that its ban is not new, but that its statement last week merely affirmed a position it has held since 2017. Still, the timing of the move is interesting, just a few months after residents started using Bitcoin to raise funds through the #ENDSARs movement.
Basically, this looks like a trend. Crypto is coming to a place where governments need to be careful. Some industry insiders seem less concerned about the Nigerian ban than their Indian counterparts are about the subcontinent's ban.
In the meantime, Congress is preparing for a number of issues this year, beginning with an impeachment process starting this week and alleviating the coronavirus pandemic. A number of cryptocurrency issues are likely to creep through Capitol Hill, however. Here are some of the key players:
House of Representatives
- Representative Maxine Waters (D-Calif.) – Rep. Waters chairs the House Financial Services Committee, the main committee that oversees cryptocurrency and fintech issues in the House of Representatives. She's scheduled a hearing on Robinhood and the GameStop Pump next week.
- Representative Patrick McHenry (R-N.C.) – Rep. McHenry is the senior member of House Financial Services. McHenry has publicly stated that he is an advocate for cryptocurrencies and fintech innovation.
- Representative Jim Himes (D-Conn.) – Rep. Himes chairs the HFSC Subcommittee on National Security, International Development and Monetary Policy, which is holding a hearing on the financing of domestic terrorism following the January 6th uprising on Capitol Hill this month. Expect Bitcoin to show up.
- French Hill Representative (R-Ark.) – Rep. Hill is the senior member of the National Security Subcommittee.
- Senator Sherrod Brown, Ohio – Senator Brown is the new chairman of the Senate Committee on Banking, Housing, and Urban Development. In public statements, he said his focus would be on evaluating a real-time payment system, and more attention to housing and urban development issues than the Committee has in previous years.
- Senator Patrick Toomey (R-Pa.) – Senator Toomey is the senior member of the Senate Banking Committee.
- Senator Elizabeth Warren (D-Mass.) – Senator Warren, who promoted the creation of the Consumer Financial Protection Bureau, serves on the Senate's banking and finance committees. She hasn't explicitly said anything about cryptocurrencies lately, but has commented on consumer protection issues that could overlap with the crypto industry.
- Senator Cynthia Lummis (R-Wyo.) – Senator Lummis, who won her seat in last year's election, joins the Senate's Banking Committee as the first member to actively champion Bitcoin. She has already announced her intention to start a fintech caucus in the Senate and hopes to "work with federal regulators to ensure that regulation of digital assets is structured to encourage innovation rather than stifle it".
Last week President Joe Biden officially withdrew the nominations of Robert Benedict Bowes and Brian Brooks. Bowes was the candidate of former President Donald Trump as Commissioner of the Commodity Futures Trading Commission to succeed current Commissioner Brian Quintenz. Brooks, the currency's former acting auditor, has been nominated for a full five-year term. Biden is expected to name Chris Brummer and Michael Barr to fill the CFTC and OCC roles.
Changing of the guard
Key: (nom.) = Candidate, (rum.) = Rumors, (act.) = Action, (inc.) = Office holder (no replacement expected)
- US Senate bill reintroduces reports of suspicious social media activity: A new bipartisan bill was introduced in the US Senate that would basically create a kind of FinCEN for social media platforms. Anyone can submit a Suspicious Transmission Activity Report (STAR) to report suspected illegal activity on various technology platforms to this new agency. What could possibly go wrong?
- Ethereum futures are now traded on CME: Ether futures with cash settlement will be offered live on CME, one of the first US exchanges to launch Bitcoin futures in 2017. "We have had Bitcoin futures since the beginning -Contracts received a record level of acceptance from institutional players ".
- Protego becomes second crypto firm to win OCC's bank charter: A Seattle-based digital assets company, Protego Trust, has won a conditional bank charter and, along with Anchorage, is one of the first crypto firms to be approved as a national bank. This is an interesting move for me as former Acting Comptroller Brian Brooks is no longer with the regulator, which means that critics of the OCC's moves regarding crypto cannot say that he influenced that particular decision. It's a promising sign. Metal Pay has also applied for a charter with the assistance of the law firm Anderson Kill.
- Ron Hammond, a former Rep. Warren Davidson (R-Ohio) legislature who wrote the Token Taxonomy Act before joining Ripple as a liaison officer, has joined the Blockchain Association as Director of Government Relations.
Outside of crypto:
- Getting vaccinated is difficult. It's Even Harder Without the Internet: This MIT Technology Review article looks at the struggles Americans in San Francisco – the heart of the national tech scene – have in trying to gain access to the Internet. It's not just about the physical infrastructure either. Reporter Eileen Guo notes that even where the Internet is easily accessible, people may not be able to afford telecommunications providers.
If you have any thoughts or questions about what to discuss next week, or any other feedback you'd like to share, please email me at firstname.lastname@example.org or find me on Twitter @nikhileshde.
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