February 9: This week in digital asset federal policy

DC Decentralized: A weekly newsletter on developments in digital asset and blockchain federal policy

This week decoded

Treasury Secretary Scott Bessent appeared in contentious hearings before the Senate Banking and House Financial Services Committees, where digital assets emerged as a central topic of discussion. That focus is expected to continue this week as both committees hold SEC oversight hearings with Chairman Paul Atkins.

A Treasury official clarified that the Department will not pursue regulations treating payment stablecoins as cash for tax purposes under the GENIUS Act, leaving any such policy changes squarely in the hands of Congressional tax writers as they shape forthcoming digital asset tax legislation.

The Senate Judiciary Committee advanced the Guarding Unprotected Aging Retirees from Deception (GUARD) Act, which aims to leverage blockchain technology to strengthen financial fraud investigations.

Read more below

Congress

Hearings

Last week

• On February 4, the House Financial Services Capital Markets Subcommittee held a hearing on A New Day at the SEC: Restoring Accountability, Due Process, and Public Confidence.

• On February 4, the House Financial Services Committee held a hearing on “The Annual Report of the Financial Stability Oversight Council.”

• On February 5, the Senate Banking, Housing and Urban Affairs Committee held a hearing on “The Financial Stability Oversight Council’s Annual Report to Congress.”

This week

• On February 11, the House Financial Services Committee holds a hearing on “Oversight of the Securities and Exchange Commission.”

• On February 12, the Senate Banking, Housing and Urban Affairs Committee holds a hearing on “Oversight of the U.S. Securities and Exchange Commission.”

Legislation

• The Senate Judiciary Committee passed the Guarding Unprotected Aging Retirees from Deception (GUARD) Act to allow grantees of several existing federal grant programs to use funds to increase resources and personnel specifically to utilize the blockchain for investigating financial fraud. It would also permit federal law enforcement to assist state and local law enforcement with tracing tools for blockchain technology, bolstering their ability to catch fraudsters who use cryptocurrency to facilitate their crimes. (Text)

• Senate Judiciary Committee Chairman Chuck Grassley (R-IA) and Sen. Amy Klobuchar (D-MN) reintroduced the Combating Money Laundering, Terrorist Finance and Counterfeiting Act to update counterfeiting laws to prohibit state-of-the-art counterfeiting methods. (Text)

• Reps. Rashida Tlaib (D-MI), Pramila Jayapal (D-WA), and Delia Ramirez (D-IL) introduced the Defund the Oligarchs, Fund the People Resolution. The press release said, “The legislation calls for an end to the political and economic dominance of billionaire oligarchs… As wealth concentrates, our democracy becomes less responsive to the needs of everyday people, and necessities like housing and health care have become unaffordable. Campaign contributions allow ultra-rich oligarchs and corporations to purchase influence, winning tax breaks for the oil and gas industry, unrestricted development of artificial intelligence, and industry-friendly crypto legislation.” (Press release)

Correspondence

• House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party (CCP) Ranking Member Ro Khanna (D-CA) sent a letter to World Liberty Financial (WLF) requesting information on the reported $500 million investment deal with United Arab Emirates (UAE) Royal Family member Sheikh Tahnoon bin Zayed Al Nahyan and potential influence on the diversion of advanced artificial intelligence chips to China from the UAE. The letter also seeks information from World Liberty Financial about its facilitation of a $2 billion investment in a cryptocurrency exchange founded in China by Changpeng Zhao, recently pardoned by President Trump. Khanna sent a related letter to Benjamin Wallace, United States Attorney for the District of Delaware. (WLF Letter)(Wallace letter)

Trump Administration

Federal Reserve

• On February 9, Fed Governor Christopher Waller will deliver remarks on “Digital Assets” at the Global Interdependence Center Summit: The Dollar and Continued U.S. Exceptionalism.

Noteworthy Quotes and Events

ADMINISTRATION

Treasury Department

• On public comments submitted regarding GENIUS Act implementation, Treasury Office of Tax Policy attorney Erika Nijenhuis said at the San Jose State University Blockchain Tax Conference, “By far the largest category of [comments] received are that payment stablecoins should be treated as cash, similar to cash equivalents or something along those lines… I think a lot of those comments are based on policy: ‘This is good policy. This would be a good result.’ Very few of them talked about what the legal basis for reaching that conclusion is.” She added, “While none of those [provisions] are exactly on point on the tax question, they do kind of send a signal that Congress didn’t want stablecoins to be treated like cash, at least for some purposes. There are many provisions of the Code that treat money differently from other types of items, like the subject received on partnership distribution or section 6050I. I have not heard anyone in the crypto world clamor to be included.” She concluded, “The preamble of [the 2024 final regulations] says that if Congress enacts legislation dealing with stablecoins — i.e., the GENIUS Act — the Treasury and the IRS will reconsider the stablecoin rules in the reporting rules. So that is among the many issues we’re thinking about with respect to stablecoins.” (Tax Notes)

• Secretary Scott Bessent posted “Thank you to SenLummis for your continued efforts in the Senate to advance critical market structure legislation for digital assets. As I said during my testimony, it is vital that the CLARITY Act is signed into law. The digital asset revolution is here, and I am confident that with leadership from both sides of the aisle we can get this across the finish line.”

Internal Revenue Service (IRS)

• The IRS posted “Tax Tip: Taxpayers who have digital assets must report gains or losses on their IRS tax return, even if they did not receive a 1099-DA form.”

Securities and Exchange Commission (SEC)

• SEC Chair Paul Atkins posted “This is history in the making. With POTUS’ leadership and a new era of coordination between the CFTC and SECGov, we’re cementing the U.S. as the Crypto Capital of the World.”

• Atkins also said, “We are out to harmonize the rules between the SEC and the CFTC, giving clarity and certainty to the innovators and to investors...so that people can develop their products in the United States rather than feel that they have to go offshore.”

White House

• President’s Council of Advisors for Digital Assets Executive Director Patrick Witt posted “Sincere thanks to the representatives from the crypto and banking industries who participated in today’s meeting on stablecoin rewards and yield. The discussion was constructive, fact-based, and, most importantly, solutions-oriented. Over the course of the past few months, we have achieved breakthroughs on several seemingly intractable policy issues. I am confident we will be able to resolve this one too.”

CONGRESS

Senate Banking FSOC Hearing Q&A

Sen. Bill Hagerty (R-TN)

• Sen. Bill Hagerty (R-TN): “Mr. Secretary, President Trump signed my bill, the GENIUS Act, into law. Private sector estimates suggest that stablecoin adoption may reach between 1 trillion and $3 trillion by the end of this decade. As you know, the GENIUS Act requires stablecoins to be backed by high quality, liquid assets such as US Treasuries. How does the US leadership in crypto and stablecoins fit into Treasury strategy for maintaining the dollar’s role in the center of the global financial system?”

  • Treasury Secretary Scott Bessent: “Well, Senator, I want to congratulate you and your colleagues both sides of the aisle, but thank you for your leadership on this. This can be an important source of funding for the US government, as we push down the funding for the US government that helps everyday Americans, whether it is for mortgages, they are any other borrowing requirements, keeps taxes low, and we believe that with the US having the safest, soundest best practices, we can draw in new sources, via of funding, via the stablecoin mechanism.”

• Hagerty: If you think about the impact of the passage of the GENIUS Act, it was a major statement in terms of keeping innovation on shore. And I’d just like to get your perspective in terms of the stability and clarity that we provide over the GENIUS Act, and what that means for keeping innovative capacity here in America.

  • Bessent: “Well, it’s innovative capacity in digital assets, and remaining the leader in that is imperative. And what we don’t want to have are central bank digital assets, which we are seeing in the rest of the world. And Senator as you and I have often discussed, we are going to see a choice between American private sector assets with our best practices and regulation, or between central bank digital assets, whether in Europe, whether in China, in the rest of the world. And I think the world is going to choose the US dollar and the private sector, well-regulated choice that US stablecoins will provide.”

• Hagerty: “Well, I couldn’t agree more, and I think that underscores my sensitivity to not undoing ex post facto, the good work that we did in genius. I want to see us put in place international reciprocal regimes that work. I want to increase the demand for US Treasuries, as you do, and I’m going to encourage my colleagues to preserve the GENIUS Act given all the hard work that went into it.”

Sen. Mark Warner (D-VA)

• Sen. Mark Warner (D-VA): “I feel like I’m in crypto hell… You know, I think, and actually, and I really appreciate what you did on the stablecoins bill. And I think, you know, we got a lot of broad bipartisan support, at least many of us. I think all of my Republicans and many of my Democratic friends agree. We want these products built in America. Crypto is here to stay, and we need clear rules of the road. And stablecoin was simple compared to market structure, but you have one of the things that we see in crypto when we are working our tail off, you can please, I think the Chairman and I’ve spent, and Cynthia and others spent more time on this than I don’t, use up my time. But there are a lot of issues around national security that you have unique perspectives on. With FinCen, with the Secret Service, we sure as hell don’t want to take away from prosecutors some of the tools they have to go against bad guys. We’ve got to have some area to close down some of the gaps in DeFi. And again, there’s bipartisan agreement on this, but boy, we need, I think we’re starting to get some of the technical assistance, but if you can just make clear that this is a real problem, and we’ll deal with yields and rewards, we’ll deal with a host of other issues, but these national security issues around DeFi are real, and we need to not create a set of rules that leaves huge exemptions and candidly takes away some of the prosecutorial powers that exist today.”

  • Treasury Secretary Scott Bessent: “Senator, I look forward to working with you on that.

• Warner: “We’ve had problems, and historically, there’s problems when the technology gets ahead of the legislation. So, if we can work with you on the legislation for both OFAC and FinCEN. We would love your technical assistance. And I think, Mr. Chairman and Senator Lummis, that you will be invited to our next round robin on that, and that may be later today or tomorrow or Monday.”

  • Bessent: “Good. And if you could convince some of the… there seems to be a nihilist group in the industry who would prefer no regulation over this very good regulation.”

• Warner: “Amen brother. So, weigh in.”

  • Bessent: “I do weigh in, early and often.”

Sen. Cynthia Lummis (R-WY)

• Sen. Cynthia Lummis (R-WY): “You’ve had a chance to travel the world since you took the oath of office. Is China trying to use digital assets and blockchain to build an alternative to American financial leadership?”

  • Treasury Secretary Scott Bessent: “We don’t know that for sure. There are lots of rumors of Chinese digital assets, of Chinese digital assets that may be backed by something other than the RMB, perhaps gold based. We haven’t seen that. They have a very large sand box in Hong Kong and is actively traveling the world, looking at different mechanisms. So, I would not be surprised.”

• Lummis: “Based on what you know now. What is your opinion about the importance of having clear rules of the road, market structure, legislation in the United States?”

  • Bessent: “Look, I think that it’s impossible to proceed without it. We have to get this Clarity Act across the finish line. And any market participants who don’t want it, should move to El Salvador.”

• Lummis: “So, as an industry, what is the benefit to having this industry embedded in the US economy?”

  • Bessent: “Well, again, as I said, that there seem to be people who want to live in the US but not have rules for this important industry, and we’ve got to bring safe, sound, and smart practices and the oversight of the US government, but also allow for the freedom that is crypto. And I think it’s a balance that is being worked out. It was worked out in the GENIUS Act, and I’m confident with leadership of people on both sides of the aisle that we can get Clarity across the line this year.”

• Lummis: “Can you see a day when conventional banks and digital asset banking are offering the same types of products, giving each an advantage to offering a broader array of financial products to the American consumer?”

  • Bessent: “I think that can happen over time, and we’ve actually been working with small and community banks to discuss how they can be part of the digital asset revolution.”

• Lummis: “Also, among the things that have challenged us in these last months is concerned by community banks and big banks that the stablecoin bill, the GENIUS Act, and market structure could cause a bleeding of deposits from small banks. What’s your reaction to that concern?”

  • Bessent: “Look, I’ve been a champion of these small banks, and deposit volatility is very undesirable, because it is the stability of those deposits that allows them to lend into their communities, ag, small business, real estate, and we will continue to work to make sure that there is no deposit volatility associated with this.”

• Lummis: “Well as an ag borrower, I commend you on that, because I have borrowed from community banks on our ag operation for decades, and we’re dependent on our community banking relationships in rural America to help sustain us and grow our businesses. So, I very much appreciate that. I want to switch to digital asset taxation for just a minute. So, among the things that I’m exploring, and the Senate Finance Committee has a package of bills that looks really good to me on digital asset taxation, but one of them that’s kind of vexing, that I could use some guidance on is the issue of de minimis, with regard to especially Bitcoin and other digital assets that might be used as a means of exchange. So, the issue is, will it be a capital gain, or will it be exempt from capital gains when it’s used as a means of exchange to purchase things? And if it’s going to be subject to a capital gain, how do you calculate what the capital gain is if somebody has a blended portfolio of Bitcoin, some of which were purchased when it was $300 some of which were purchased today at 75,000, and some of which were purchased a year ago at over $100,000? How do you calculate the capital gain? Do you have some thoughts about that, or who I could consult with in your shop?”

  • Bessent: “It’s a very complicated subject. We’d be very happy to have our Office of Tax policy work with your team.”

• Lummis: “I’ll be over. Thank you, Mr. Secretary, look forward to seeing them.”

House Financial Services FSOC Hearing Q&A

Rep. Brad Sherman (D-CA)

• Rep. Brad Sherman (D-CA): “Mr. Secretary we live through the bailouts of 2008. When powerful men lose money, they now want a government bailout. Does the Treasury Department or the various components of the FMOC have the authority to bail out Bitcoin?”

  • Treasury Secretary Scott Bessent: “Could you please elaborate? What exactly does bail out Bitcoin mean?”

• Sherman: “Okay, could you instruct the banks of this country to buy more bitcoin, or change banking regulations so that they are encouraged to do so in terms of the reserves that they’re otherwise required to have?”

  • Bessent: “Again, that within the context of asset diversification, within banks, they could hold many assets.”

• Sherman: “They can and they’re different. But do you have the authority to order banks to buy Bitcoin or to invest US tax dollars in Bitcoin or Trump coin?”

  • Bessent: I am Secretary of the Treasury. I do not have the authority to do that, and as Chair of FSOC, I do not have that authority.”

• Sherman: “So we’re not going to see our tax dollars invested in crypto assets?”

  • Bessent: “Why would a private bank be your tax dollars, Congressman?”

• Sherman: “Excuse me, I’m now asking about the money of our taxpayers, which you manage as Secretary of the Treasury. Is it going to be deployed into crypto assets?”

  • Bessent: “We are retaining seized Bitcoin.”

• Sherman: “That’s not exactly taxpayer money. You collect a lot of taxes this month.”

  • Bessent: “No, that is an asset of the US.”

• Sherman: “It’s an asset of the US. And are you going to invest seizure?”

  • Bessent: “Of that one billion of Bitcoin was seized, 500 million was retained, and that 500 million has become over 15 billion.”

Rep. Bryan Steil (R-WI)

• Rep. Bryan Steil (R-WI): “I chair the digital asset subcommittee. We passed and signed into law the STABLE Act, setting forward legislation as relates to stablecoin. Treasury is required to complete implementing regulations by July 18 of this year. Are you going to hit the deadline? And are there any impediments preventing you from hitting that July 18 deadline?”

  • Treasury Secretary Scott Bessent: “I don’t see any impediments at present, and if we’re going to hit them, we will notify you in the committee.”

Rep. Stephen Lynch (D-MA)

• Rep. Stephen Lynch (D-MA): “Mr. Secretary based on early reports, and this is an analysis done by Public Citizen and subsequent news reports, when the Trump Administration came into office, they immediately took steps to either halt, dismiss, or roll back over 100 enforcement actions and investigations against corporations in its first two months in office, with a very heavy concentration on financial services, consumer protection, and cryptocurrency, totaling over $3.1 billion in potential penalties avoided. As a member of the Financial Services Oversight Council, is that a concern that you have raised within the council, all these immediate dismissals of cases against financial services firms?”

  • Treasury Secretary Scott Bessent: “Well, I think your Biden Administration had an excuse…”

• Lynch: “Sir. Please be responsive to my question.”

  • Bessent: “I am.”

• Rep. Stephen Lynch (D-Mass.): “You’re not.”

  • Bessent: “I’m trying, sir, and this back and forth is just eating your time. The Biden Administration had an extinction policy for crypto.”

• Lynch: “This is when Trump came into office. I’m going to go to the next question, because you’re not… the answers have to be responsive if we’re going to have a if we’re going to have a serious hearing here.”

  • Bessent: “Well, Questions have to be serious.”

• Lynch: “Well, those are 100 dismissals of cases that the Trump Administration came in and executed in their first weeks in office. Like that. All of a sudden, all these crypto cases went away. The SEC was dropping cases. The Consumer Financial Protection Bureau dropping cases and… Look, you’re on FSOC with all the heads of these agencies, this should be a serious question to you. Trust should be a serious question and a serious issue for the financial services industry, especially as a Secretary of the Treasury.”

Rep. Warren Davidson (R-OH)

• Rep. Warren Davidson (R-OH): “As Mr. Foster was trying to tout the benefits of communist money, I appreciate you calling him out on that and rejecting it. And frankly, during the Biden Administration, the Federal Reserve posted positions; they were literally recruiting developers to develop a central bank digital currency, including, you know, a quote, senior crypto architect, role dedicated to CBDC development. Are you aware of any ongoing government or Federal Reserve efforts to develop a US central bank digital currency within the administration?”

  • Treasury Secretary Scott Bessent: “Absolutely not. President Trump has made it clear that a central bank digital currency is anathema to the creation of the US as a digital powerhouse. I can’t speak for what goes on at the Fed, but I would assume that they would not be part of that either.”

• Davidson: “Yeah, I hope so. Because not only has the president been clear on that, he issued an executive order on it, and said that we will not develop a central bank digital currency. And of course, that applies to the whole executive branch. Does that mean it applies to the Federal Reserve?”

  • Bessent: “Again, I would say that the Federal Reserve has been very cooperative in terms of the regulation, and they’re a bit forward thinking with the GENIUS Act. What’s happening? Fitting with stablecoins? How that fits within the financial and the payment system?”

• Davidson: “Yeah, I think that that approach clearly contrasts with what really China has been working on is essentially managed, basically programmable money by the federal government. And frankly, they’re working on it with the Bank of International Settlement, with the European Central Bank of England, Mark Carney, seems to be a fan of it, and they’re all collaborating to basically develop communist money and impose it on their populations. And it seems like you have a different hope for the future. So, as you lay that out, would love to work with you on the future of money. I really think it’s going to shape the future of Western civilization.”

  • Bessent: “I couldn’t agree more with you, Congressman, and it’s moving fast, and the U.S. has to keep the lead.”

Rep. Mike Lawler (R-NY)

• Rep. Mike Lawler (R-NY): “Today, a substantial and growing share of the dollar stablecoin market operates outside the US, as foreign jurisdictions move quickly to establish legal regimes that encourage dollar stablecoin issuance in their markets. Foreign issued stablecoins already compete globally by offering consumers economic value and incentives to use and hold them, and countries like China are actively using economic incentives to drive adoption of their digital currencies. As Treasury implements stablecoin legislation, do you agree that US rules should preserve enough flexibility for American issuers to remain competitive so dollar activity stays on shore, transparent and under US oversight?”

  • Treasury Secretary Scott Bessent: “With stablecoins, I would say what we want is US best practices. Stablecoins can go around the world. And indeed, we are seeing the, I believe we will see the adoption, especially in emerging economies or maybe any other individuals who want to hold the US dollar. But I think it is paramount, as was done with the GENIUS Act, to put in US best practices.”

Digital Asset Tax

• Senate Finance Chair Mike Crapo (R-ID) said, “It’s a new policy area, and there’s folks with a lot of different perspectives.” He also said, “There’s so many different positions within the parties, so we’ve always got little issues coming up that haven’t yet been resolved.” He added, “The president wants to have us set the rules of the road and they’re working with us, so it’s a joint effort.” (Punchbowl)

• Senate Finance Ranking Member Ron Wyden (D-OR) said, “Clearly this affects so many aspects of the tax debate, including the tax gap, so I’m very interested in working cooperatively and trying to address this.” (Punchbowl)

Miscellaneous

• On Mornings with Maria, Sen. Roger Marshall (R-KS) said, “Yeah, Maria, I think that’s the biggest hang-up, is the banks are keeping it from going forward because they don’t want that to happen. They’re afraid that people will move their CDs, their savings out of their bank account, and into community banks. We loan that money. I get all that. But also, I think there’s still concern in how criminals use crypto as well, and how it’s used in money laundering, the Chinese tried using it for money laundering, as they continue, fentanyl poisoning, human trafficking, those types of things as well. So, look, we want to get it right. We don’t want to make the regulations too tight, but they can’t be too loose, and it’s hard to get it just right.” (Press release)

• Marshall said about the crypto ransom note in the Nancy Guthrie case, “Well, Maria, I think to a certain point you can, but it’s how deep does it go? And boy, I’m not the crypto expert, but for some reason, for most of these criminals, that ransom they want, of course, is in crypto. So, there’s a reason they like that.” (Press release)

• Rep. Stephen Lynch (D-MA) posted “In the first two months after Trump took office, the Securities & Exchange Commission and other financial regulatory agencies dismissed more than 100 crypto- and finance-related enforcement cases – allowing finance and crypto companies to defraud American investors and consumers and violate U.S. securities laws while avoiding over $3 billion in government penalties. The Trump Administration has also abandoned critical consumer protection policies related to the use of artificial intelligence by banks and other financial institutions. As lead Democrat on the Subcommittee on Digital Assets and Artificial Intelligence, I demanded accountability from SecScottBessent on behalf of American investors and consumers.”

• Rep. Bryan Steil (R-WI) posted “Breaking Crypto News SecScottBessent confirms Treasury is on track to implement stablecoin regulations by July 18 and secure US dollar dominance!”

• Sen. Dick Durbin (D-IA) posted “Cryptocurrency is a notoriously risky asset that is vulnerable to financial crashes. But Senate Republicans voted down my amendment that would have prevented American taxpayers from being on the hook to pay for a crypto bailout.”

• Sen. Cynthia Lummis (R-WY) posted “Digital assets are the future of financial services. We are putting strong safeguards in place to ensure their seamless integration, making life easier and more affordable for the American people.”

• Lummis also posted “We are working every single day to get digital asset market structure across the finish line. The time is now.”

• Rep. Troy Downing (R-MT) posted “Under negotiator-in-chief POTUS’s leadership, we’ve never been closer to providing real CLARITY for digital assets.”

• Rep. Thomas Massie (R-KY) posted “BLOCKED: My amendment to stop the creation of Central Bank Digital Currencies (CBDCs) that will be used for financial surveillance and control of your wallet.”

• Rep. Warren Davidson (R-OH) posted “Chinese people don’t even like Chinese money. Instead, China is working with Democrats and Europeans to build a Central Bank Digital Currency backed by digital ID - communist money. Sadly, Republicans have proven incapable of banning it. President Trump’s full Digital Asset Executive Order should become law. 1. Ban CBDC 2. Protect self-custody. 3. Stablecoins 4. Market structure”

What I’m Reading This Week

• EU Calls on 12 Countries to Impose Crypto Tax Rules, Josh White, Law360.

• Crypto Asset Manager Addresses Staking Safe Harbor, Tax Notes.

About Zero One Strategies

Zero One Strategies is a specialized 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, digital assets, 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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