George Leonardo
Good morning and happy Friday. This week, the House passed an AML bill, a Senate committee advanced a bill to stop lawmakers from trading or owning investment assets, and members discussed crypto at an AI hearing.
The House passed a bill to create a working group dedicated to developing legislative and regulatory proposals aimed at combatting the illicit use of digital assets by voice vote.
The Senate Homeland Security and Governmental Affairs Committee advanced legislation to prohibit Members of Congress, the Vice President, and President from trading or owning certain investment assets - including digital assets - while serving in public office.
At a House Financial Services hearing on artificial intelligence, Chair Patrick McHenry and Whip Tom Emmer asked how blockchain could be used to improve AI applications.
As Bitcoiners gather in Nashville for Bitcoin 2024, Senator Cynthia Lummis (R-WY), Rep. Ro Khanna (D-CA), and Presidential candidate Robert F. Kennedy all expressed varying levels of support for potentially allowing the Federal Reserve to hold bitcoin as a reserve asset.
On Monday, the House passed the bipartisan Financial Technology Protection Act of 2023 by voice vote.
Text.
Sponsors: Reps. Zach Nunn (R-IA), Jim Himes (D-CT), Warren Davidson (R-OH), Michael Lawler (R-NY), William Timmons (R-SC).
The bill would create a working group to study and develop legislative and regulatory proposals to combat illicit financial transactions involving new financial technologies, including digital assets. § 2.
The working group would be comprised of senior-level representatives from federal agencies (Treasury, FinCEN, IRS OFAC, DOJ, DHS, State, CIA) and five representatives from the private sector, including a "blockchain intelligence company." Id.
The bill directs federal agency heads on the working group to submit a report to Congress on the potential "illicit uses" of digital assets and develop a strategy for mitigating such uses. § 3.
What's Next?
To become law, the bill still needs to pass the Senate and get the President's signature. Companion legislation in the Senate led by Senators Ted Budd (R-NC) and Kirsten Gillibrand (D-NY) remains pending in the Senate Banking Committee.
Because the bipartisan bill sailed through the House by voice vote and House Financial Services Committee by a unanimous 50-0 vote, it's possible this may be one crypto bill that actually gets across the finish line this Congress.
On Wednesday, the Senate Homeland Security and Governmental Affairs Committee advanced the "Ending Trading and Holdings In Congressional Stocks Act"(the "ETHICS Act") by a 8-4 vote.
Text.
In short, the bill would amend the Ethics in Government Act to generally prohibit Members of Congress, the Vice President, and President from owning or trading "covered investments" while in office and for 90 days after leaving office. The ban would also apply to lawmakers' spouses and dependent children.
Covered investments are defined to include any investment in a:
security,
commodity,
future,
or digital asset. See Proposed 5 U.S.C. 131 § 13161(2)(A)(detailing full list of covered investments).
Digital asset is defined as "any digital representation of value that is recorded on a cryptographically secured distributed ledger or any similar technology."
Covered investments would exclude diversified mutual funds and exchange-traded funds, U.S. treasury bills, and more. See Proposed § 13161(2)(B)(detailing full list of excluded investments).
The President, Vice President, and Members of Congress would have to divest any covered investments that they, their spouses, or children own within 120 days of the effective date, March 31, 2027. See Proposed § 13163 (a), (j).
Officials sworn into service after March 31, 2027 would have 120 days from when they begin their term of public service to divest their covered investments. Id.
What's Next?
To become law, the bill would still need to pass the full Senate, House, and get signed by the President. There is a companion bill in the House led by Raja Krishnamoorthi (D-IL), but it remains pending in three different House committees.
Based on the contentious debate leading up to the committee vote, the bill would likely need to be amended to advance further, as Senators Mitt Romney (R-UT), Ron Johnson (R-WI), James Lankford (R-OK) and Rand Paul (R-KY) expressed serious concerns, particularly with the provision requiring lawmakers to divest assets they owned prior to getting elected (e.g., could force lawmakers to sell family-owned small businesses).
Chairman Gary Peters (D-MI) expressed willingness to address their concerns via amendments on the Senate floor, but wanted to move ahead with the Committee vote to keep the ball moving forward. You can watch the full markup here.
On Tuesday, the House Financial Services Committee held a hearing on artificial intelligence, focusing on applications in financial services and housing.
Watch Hearing.
At a high-level, Democrats focused on ensuring AI applications don't result in discriminatory or anti-consumer outcomes, while Republicans focused on ways AI could expand financial opportunity and access to financial services.
Crypto discussion was limited, but here are the highlights:
Fraud Prevention & Digital Identity
Chairman Patrick McHenry asked Frederick Reynolds, Counsel for FIS Global, how blockchain could help prevent fraud. Reynolds explained that generative AI is adept at creating fake identities and related data elements. According to Reynolds, blockchain technology could help address this issue, as secure, verifiable digital identities on a blockchain could act as "digital passports," offering consumers greater access to financial services.
While he didn't mention blockchain or digital assets, Rep. Bill Foster (D-IL) honed in on the need for Congress to promote secure digital identities, also citing concerns with AI-created deep fakes.
Data Veracity & Transparency
House Majority Whip Tom Emmer (R-MN) focused his entire line of questioning on the "symbiotic" relationship between digital assets and AI and the technologies' potential to boost the U.S. economy.
In separate exchanges, witnesses Reynolds and Vijay Karunamurthy, CTO at Scale AI, generally agreed with Rep. Emmer's assessments that blockchain and digital assets could help AI by:
improving the accuracy, transparency, and trustworthiness of data, and
mitigating risks relating to centralized single points of failure.
House
Happy August Recess! Members will be back in their home districts and on the campaign trail until September.
Hearing Update: An HFSC hearing on DeFi that had been scheduled for next week has been postponed.
Senate
The Senate Agriculture Committee may try to markup Chairwoman Debbie Stabenow's (D-MI) draft bill to grant the CFTC oversight authority over the digital commodity spot market and establish regulatory requirements for digital commodity intermediaries.
Legislation
Senator Roger Marshall (R-KS) is no longer cosponsoring Senator Warren's Digital Asset Anti-Money Laundering Act, withdrawing his name on Wednesday.
Senator Lindsey Graham (R-SC) is the only remaining Republican cosponsor.
Bitcoin
Presidential Politics at Bitcoin Conference
In an interview with Scott Melker and Cynthia Lummis, Presidential Candidate Robert F. Kennedy Jr. says he would oppose a CBDC and support directing the Fed to "buy an equivalent amount of Bitcoin that we have gold."
Former President Trump will speak on Saturday.
Vice President Kamala Harris was invited to speak but declined.
Bitcoin as a Reserve Asset
Senator Cynthia Lummis (R-WY) is reportedly working on a bill that would authorize the Federal Reserve to purchase and hold bitcoin as a reserve asset.
Article by Fox Business's Eleanor Terrett, Charlie Gasparino.
On the Thinking Crypto podcast, Rep. Rho Khanna (D-IL) said having the Fed hold bitcoin is a proposal "worth exploring, if done right," noting bitcoin is a non-inflationary store of value and easier to transport than gold.
Watch/listen to podcast here.
"How the U.S. Could Leverage Bitcoin As a 'Trump Card' Against China"
Bitcoin Mining
Senator Lummis released a report arguing against President Biden's previously proposed mining tax on energy consumed by digital asset miners.
Appropriations
The House's Financial Services and General Government funding bill for FY 2025, which had been slated for House consideration this week and included a few crypto policy riders, was ultimately pulled due to lack of support.
The House had hoped to pass all 12 appropriations bills before the August recess, but only passed 5 (Defense, Homeland Security, MilCon-VA, State-Foreign Ops, and Interior).
Helpful approps tracker here.
Congress must pass government funding legislation by September 30, 2024.
Spot Ether ETFs
"U.S. spot ether ETFs make market debut in another win for crypto industry."
Article by Hannah Lang & Suzanne McGee in Reuters.
Use Cases
The Crypto Council for Innovation published a report on how smart contracts are improving delivery of humanitarian aid to drought-prone regions of Kenya, lowering transaction costs by 75% and speeding up receipt of payments by 90%.
Privacy
DeFi Education Fund's Amanda Tuminelli breaks down the Tornado Cash case and related policy concerns in an interview with Blockchain Tipsheet.
Last Week's A: Senator J.D. Vance (R-OH) clerked for Senator John Cornyn (R-TX) on the Senate Judiciary Committee when he was in law school.
This Week's Q: Who was the first foreign dignitary to address a joint meeting of Congress?
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