March 2: This week in crypto federal policy
DC Decentralized: A weekly newsletter on developments in digital assets and blockchain federal policy
This week decoded
Setting the stage for this week in U.S. crypto policy, the OCC issued a notice of proposed rulemaking to implement the GENIUS Act framework for payment stablecoin issuers, while FinCEN opened nominations to the Bank Secrecy Act Advisory Group with a specific focus on experts who can inform Treasury’s efforts to modernize the BSA and implement the GENIUS Act. At the same time, the Federal Reserve Board released a proposed rule to formally codify the removal of reputation risk from its bank supervision framework.
On Capitol Hill, the House Science Committee examined the impact of Bitcoin mining on data center energy consumption, including a line of questioning on whether moving Bitcoin from proof-of-work to proof-of-stake could cut data center power usage roughly in half.
Read more below
Congress
Hearings
Last week
On February 24, the House Science, Space and Technology Investigations and Oversight Subcommittee held a hearing on “Powering America’s AI Future: Assessing Policy Options to Increase Data Center Infrastructure.”
On February 26, the Senate Banking, Housing and Urban Affairs Committee held a hearing on “Update from the Prudential Regulators: Rightsizing Regulation to Promote American Opportunity.”
This week
On March 5, the House Financial Services Financial Institutions Subcommittee holds a hearing on “Fighting Fraud on the Front Lines: Challenges and Opportunities for Financial Institutions.”
On March 5, the House Financial Services Capital Markets Subcommittee holds a hearing on “The Role of Self-Regulatory Organizations in U.S. Markets: Examining FINRA (Financial Industry Regulatory Authority) and the MSRB (Municipal Securities Rulemaking Board).”
Upcoming
On March 17, the House Financial Services Committee holds a hearing on “Updating America’s Financial Privacy Framework for the 21st Century.”
On March 18, the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity Subcommittee hearing on “Revisiting the Treasury-Fed Accord.”
On March 25, the House Financial Services Committee holds a hearing on “Tokenization and the Future of Securities: Modernizing Our Capital Markets.”
On March 26, the House Financial Services Digital Assets, Financial Technology, and Artificial Intelligence Subcommittee holds a hearing on “Innovation at the Speed of Markets: How Regulators Keep Pace with Technology.”
Legislation
Reps. Young Kim (R-CA), William Timmons (R-SC), and María Elvira Salazar (R-FL) introduced the Savings and Early Exposure to Diversified Securities (SEEDS) Act to make Trump accounts permanent and to treat digital asset indexes as eligible investments for purposes of Trump accounts. (Text)
Sen. Jack Reed (D-RI) introduced the Foreign Stablecoin Transparency Act to require foreign companies that issue stablecoins pegged to the U.S. dollar to undergo an audit. (Text)
Correspondence
Sens. Jack Reed (D-RI) and Andy Kim (D-NJ) sent a letter to the Office of the Comptroller of the Currency (OCC) requesting the names of the ultimate beneficial owners of World Liberty Trust Company N.A. The letter says, “Applications for charters from the OCC are supposed to be public, with limited information entitled to confidential treatment. But the public volume of the application does not include any information about the ultimate beneficial owners of World Liberty Trust Company. The only information disclosed is that World Liberty Trust Company is 100% owned by an entity called WLTC Holdings, LLC. The full ‘upper tier’ organizational chart of World Liberty Trust Company and a capitalization table for WLTC Holdings have been kept confidential.” (Letter)
Senate Permanent Subcommittee on Investigations (PSI) Ranking Member Richard Blumenthal (D-CT) sent a letter to Richard Teng, chief executive officer of Binance, requesting information on why the exchange chose to suspend or terminate compliance personnel who discovered illicit Iranian and Russian use of the platform. (Letter)
Sens. Ruben Gallego (D-AZ), Chris Van Hollen (D-MD), Angela Alsobrooks (D-MD), Raphael Warnock (D-GA), Catherine Cortez Masto (D-NV), Elizabeth Warren (D-MA), Lisa Blunt Rochester (D-DE), Andy Kim (D-NJ), Tina Smith (D-OR), Mark Warner (D-VA), and Jack Reed (D-RI) sent a letter to Treasury Secretary Scott Bessent and Attorney General Pam Bondi pressing the Treasury and Justice Departments to investigate reports that Binance is facilitating illicit finance activities, including transactions linked to Iran and its proxies. (Letter)
Trump Administration
Office of the Comptroller of the Currency (OCC)
The OCC issued a proposed rulemaking to implement the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. The notice of proposed rulemaking seeks comment on the regulations that would apply to permitted payment stablecoin issuers and foreign payment stablecoin issuers under the OCC’s jurisdiction as well as certain custody activities conducted by OCC-supervised entities. Comments from the public are due 60 days from the date of publication in the Federal Register. (Notice)
Treasury Department
FinCEN published a request for nominations of financial institutions, trade groups, and non-federal regulators or law enforcement agencies for membership in the Bank Secrecy Act Advisory Group. New members will be selected for three-year membership terms. FinCEN is “particularly interested in receiving nominations for eligible entities… that can share insights on Treasury’s efforts to modernize the BSA framework and implement the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act).” Nominations must be received by March 27. (Federal Register)
Federal Reserve
The Federal Reserve Board published notice of proposed rulemaking requesting comment on a proposal to codify the removal of reputation risk from its supervision of banks. The proposal also reiterates the Board’s policy against penalizing or prohibiting an institution from banking a customer engaged in legal activity. Comments are due by April 27. (Federal Register)
Securities and Exchange Commission (SEC)
Taylor Lindman was named Crypto Task Force Chief Counsel, replacing current CFTC Chair Michael Selig.
Noteworthy Quotes and Events
ADMINISTRATION
Office of the Comptroller of the Currency (OCC)
The OCC posted “Stablecoins represent a legally permissible new payment tool. The OCC invites comments on a proposed regulatory framework for payment stablecoins pursuant to the GENIUS Act.”
Federal Reserve
In her opening statement at the Senate Banking hearing on prudential regulators, Federal Reserve Board Vice Chair Michelle Bowman said, “Non-bank financial institutions continue to increase their share of the total lending market, creating strong competition for regulated banks without facing the same prudential standards to compete effectively with non-banks on both payments and lending. The Federal Reserve is encouraging banks to innovate, to improve their products and services. We’re working with the banking regulators to develop regulations that include capital and liquidity for stablecoin issuers, as required by the GENIUS Act. We also need to provide clarity on digital assets to ensure the banking system is well placed to support these activities.”
In her written remarks, Bowman said, “We are also working with the other banking regulators to develop regulations that include capital and liquidity for stablecoin issuers as required by the GENIUS Act. Additionally, we will provide clarity regarding the treatment of digital assets to ensure that the banking system is well placed to support digital asset activities. This includes clarity on the permissibility of activities and willingness to provide regulatory feedback on proposed new use cases. As a regulator, it is my role to encourage innovation in a responsible manner, and we must continuously improve our ability to supervise the risks that innovation may present to safety and soundness.” (Remarks)
Federal Deposit Insurance Corporation (FDIC)
At the Senate Banking hearing, FDIC Chair Travis Hill said, “The FDIC has also taken a more open minded approach with respect to banks that offer products and services related to digital assets, while maintaining our expectation that such activities are conducted in a safe and sound manner. Specifically, we rescinded the Biden era prior notification requirement for digital. Asset activities, which served as a significant barrier to banks participation in these activities, withdrew from several interagency joint statements, including one that suggested that use of public distributed ledger systems was likely inconsistent with safe and sound banking practices, and are actively working to implement the requirements of the GENIUS Act. We issued an initial proposal to establish an application process for stablecoin issuers in December, and expect to issue a more comprehensive proposal to implement other aspects of the law in the coming weeks.”
Securities and Exchange Commission (SEC)
SEC Chair Paul Atkins spoke on the Wall Street Journal Opinion podcast All Things about America’s Digital Currency Revolution. On market structure, he said, “I’m hoping, I think it sounds like they will do it here this year. I’m looking forward to that. And obviously, I’m not a member of Congress, so I don’t know all the dealing that’s going on there, but I take everyone at face value that they want and need this and that’ll go through. So I’m really very supportive. We at SEC have been providing both houses, what we call technical assistance, telling them how their ideas can mesh with the current securities framework, and the CFTC has been doing the same. So I think they’re well provisioned as far as their knowledge of how their drafts will affect the marketplace or not. And so I think all that is great. And so I’m looking forward to their taking good swift action this year getting it to the president’s desk and for his signature.” (WSJ)
Atkins posted “Thanks to KimStrassel from the WSJopinion for a wonderful conversation! Great to discuss our ongoing efforts at SECGov to modernize our financial system, keep the U.S. as the crypto capital of the world, and reform disclosure requirements.”
CONGRESS
Sen. Brian Schatz (D-HI) posted “I just don’t think this guy is kidding about trying to take over elections, consolidate media, control AI and crypto for corrupt goals, and divide this country right down the middle. And I think a lot of super smart and decent people are trying not to believe their own eyes.”
Sen. Elizabeth Warren (D-MA) posted “Sam Bankman-Fried, the fraudster who stole at least $8 billion from customers using his crypto exchange, just endorsed the CLARITY Act. That should set off alarm bells. Any crypto market structure bill must protect investors, our financial system, and American taxpayers.”
Sen. Cynthia Lummis (R-WY) posted “This is exactly why we need legislation. Under the Clarity Act, banks and credit unions have the opportunity to grow by adopting bitcoin, digital assets and distributed ledger technology.”
Lummis also posted “It’s not the Fed’s role to play both judge and jury for banking digital asset companies. Glad to see this important step to permanently remove “reputation risk” from Fed policy and put Operation Chokepoint 2.0 to rest so America can become the digital asset capital of the world.”
Rep. Bryan Steil (R-WI) posted “What am I looking for in President Trump’s State of the Union? Securing US elections, Banning members of Congress from buying stocks, Ensuring US leadership in digital assets”
Financial Services GOP posted “Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence Chairman RepBryanSteil on boosting U.S. competitiveness in next-generation finance: ‘We’re reshaping the future of digital assets with the enactment of the GENIUS Act and by advancing the CLARITY Act to establish clear rules of the road, protect consumers from fraud, and ensure America is the global leader in innovation.’”
Rep. Warren Davidson (R-OH) posted “Freedom surrendered is rarely reclaimed. It will take a miracle, but we must protect the right to transact - privately, with self-custody, and no intermediary. No CBDC. No digital ID.”
Senate Banking, Housing, and Urban Affairs Committee Hearing on Prudential Regulators Q&A
Chair Tim Scott (R-SC)
In his opening statement, Chair Tim Scott (R-SC) said, “I look forward to your agencies’ continued progress implementing the GENIUS Act, bringing digital assets and stablecoins into clear, regular, regulated frameworks, strengthens consumer protection and ensures innovation here at home in the United States and not overseas.”
Sen. Cynthia Lummis (R-WY)
Lummis: “As you know, this committee has been wrestling with market structure for digital assets for quite some time, and I want to focus for a minute on section 401, of the bill which lists digital asset related activities that banks are permitted to engage in. So is it necessary that we have explicit authority for banks to engage in digital asset activities and have it in statute? Is that important, like for economic opportunities and safety and soundness?”
Fed Governor Michelle Bowman: “I can tell you that in my experience at the Federal Reserve that we had implement implemented under the previous Vice Chair requirements that hindered the ability for banks to engage in these kinds of activities. We’ve rescinded those under my leadership. So for the duration of that ability, it could be helpful, but I’d be happy to visit with you about that after I learn more about the draft.”
Lummis: “Thank you. There are three states that authorize deposits in digital assets by banks, and there will be more if we can get this market structure legislation across the finish line. I’ll look forward to those conversations later… The Bank of England, European Central Bank and Swiss National Bank, among other countries, have offered payment only accounts. They offer them to eligible institutions, and they’ve done it for years. For the US to remain competitive in the payments space long term, do we need the same type of structure?”
Bowman: “Senator Lummis, that’s a great question. Thank you for asking it. I would want to defer to Governor Waller, and the work that he’s doing to address some of the issues that have been raised with the structure for how we consider applications for Master accounts. I think the way that he’s working to address this is through the introduction of a potential skinny account that and we’ve published an RFI, a request for information for a number of different questions that that we’ve raised to ensure that should an account of this nature be offered, that it consists of the appropriate safeguards and guard rails to allow for it to be a successful endeavor.”
Lummis: “Well, and I want to acknowledge that if that we should do this, and we should do it quickly, because we’re in a race with other countries to be the digital asset capital of the world, and this is instrumental and important to that discussion. I strongly support the Federal Reserve finalizing the payment account proposal, and I hope you do it as soon as possible. I hope my colleagues on this committee will also support that. Thank you very much.”
Sen. Thom Tillis (R-NC)
Tillis: “I am working with the White House and with members on the committee on trying to resolve the final steps so that we can get to a market structure, market formation bill for crypto. And the one thing that I still have not been able to find much analysis on, except for that which was commissioned by various stakeholders is to what extent we really do have a deposit migration risk if we don’t get this right? So we may also submit some questions for the record, for appropriate people to just to point me to a definitive resource. I’m not one of these guys that sees a risk spread and doesn’t try to figure out how to create strategies for dealing with the risk as they’ve been expressed by community banks and G sibs. So I’ll be looking for some help there. I just need some independent assessment on there for us to be able to move forward.”
House Science, Space and Technology Investigations and Oversight Subcommittee Hearing on Data Center Infrastructure Q&A
Rep. Bill Foster (D-IL)
Foster: “Dr. Masanet, you talked about the importance of getting data collection now, roughly 4% of electrical demand is AI data centers. Roughly one to 2% is Bitcoin mining. And on February 1, the Trump Administration ceased collection of information on the energy consumption by Bitcoin mining. Were you aware of that? No, the EIA has a deep dive discussion of that and so it seems like that’s a huge step backwards. I’ve been frustrated for a while on this because, you know, half of all of the data center consumption is Bitcoin mining. And when Ethereum switch from proof of work to proof of stake, it’s power consumption went from very significant to near zero. And there’s no technical reason why that couldn’t be done with Bitcoin. If we did that, that would provide, you know, today, half the energy that you’re consuming in the whole and I was just wondering, is that something that there have been serious efforts at trying to make that happen? Does that depend on a nudge from Congress?”
Eric Masanet, Chair of Emerging Technologies, UC Santa Barbara/Berkeley Lab: “Thank you, Congressman. Cryptocurrency mining is something that folks like I do study in looking at data center energy use. And you’re right, proof of stake, sorry, proof of work is a very energy intensive Bitcoin process, but that shift is really something that is a bit beyond my, my expertise, how to, how to facilitate certain I can say, technically, yes, a shift would…”
Foster: “In many ways, we have, you know, there’s a voting mechanism where Bitcoin and all crypto can, they can change their underlying code. In fact, that was done with Ethereum back in roughly 2022, and it worked, and it’s reliable. There’s no problem with it, no cybersecurity problems that I’m aware of. And so, it seems like it works. And it’s not a small thing. And that might be something where, with my other head on, in financial services, maybe we can find ways to incentivize the collective voters of Bitcoin to actually change their you know, from proof of proof of work to proof of stake. It would be a huge, anyway, just a thought. If you dig up research on how close that, I believe there were technical proposals that say, here’s exactly how we will switch Bitcoin. And it just seems like if we could do that, that would at least take a lot of pressure off of the grid. Yeah. I’ve read various summaries of various analyzes of what’s the cheapest way to do this, to provide the energy.”
Rep. Emilia Sykes (D-OH)
Sykes: “My district is home to a cryptocurrency company that once operated the world’s largest data center in China, but is now headquartered in Akron, Ohio, now known as SOLAI Limited, with a data center in the middle of the city. This data center can use about 83 megawatts of power per day and has the ability to draw enough electricity to power 63,000 homes. For context, there are nearly 85,000 homes in all of the city of Akron and Ohioans have already begun seeing increases in electricity costs because of these data centers, moreover, due in part to increase energy use, studies have shown that communities can see increases in air pollution from these crypto mines, increasing health risks and of course, unfortunately, we can’t talk about energy in Ohio without talking about bribery.”
What I’m Reading This Week
Crypto is Pointless. Not Even the White House Can Fix That, Ryan Cummings and Jared Bernstein, The New York Times.
Permissibility is the Real Prize for Banks in Crypto Bill, Claire Williams, American Banker.
About Zero One Strategies
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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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