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Two things have been consistent since your Morning Money host started writing about digital assets last year:
The first: The SEC is seeking to bring crypto exchanges and the entrepreneurs behind tokenized offerings under its direct oversight.
The second: Key players in the industry — a broad term that I’ll use to refer to unregistered exchanges, brokerages and lending platforms that offer customers access to digital asset ecosystems — don’t want to be subject to the same stuffy rules that apply to traditional securities businesses.
As is the case in many situations when there are two groups with intractable positions, the conflict escalates the longer it persists.
SEC Chair Gary Gensler on Thursday offered his most specific critique to date of the industry’s position, ticking through a litany of ways in which new crypto firms operate similarly to the ancient fuddy-duddies of traditional capital markets. For major crypto exchanges, falling into compliance would require them to break up different parts of their businesses “into separate legal entities to mitigate conflicts of interest and enhance investor protection,” per POLITICO’s Declan Harty.
And while Gensler said there’s some flexibility around the registration of individual token offerings, “the Commission has spoken with a pretty clear voice here,” he said. “Not liking the message isn’t the same thing as not receiving it.”
Will this prompt crypto exchanges, tokenized startups and the entrepreneurs behind decentralized finance platforms to rush to the SEC’s doors to start the process of registering? Probably not.
But it does lay some groundwork for how Gensler will likely address crypto-related questions from members of the Senate Banking Committee when it meets on Sept. 15 for an SEC oversight hearing.
That event falls exactly one day after the Senate Agriculture Committee holds a hearing on legislation that tasks the Commodity Futures Trading Commission with regulating spot markets and exchanges where Bitcoin, Ether and other so-called digital commodities trade. The Senate Ag bill, which is sponsored by Chair Debbie Stabenow (D-Mich.) and Sen. John Boozman (R-Ark.), exempts any investment security from falling under its definition for “digital commodity” — a move that leaves the SEC’s jurisdiction over those assets intact.
In his prepared remarks, Gensler said he “look[s] forward to working with Congress” to give the CFTC new authorities while “maintaining the regulation of crypto security tokens and related intermediaries at the SEC.”
These two things are not mutually exclusive. The Stabenow and Boozman bill specifically allows digital commodity platforms to register with both regulators.
However, that framework could lead to questions about how the SEC would be able to exert its current authority — and potentially compel the breaking up of crypto businesses — if the CFTC has new powers over how those platforms certify, list, delist, transact and maintain custody over assets that fall into that “digital commodity” bucket. For now, industry players haven’t been encouraged by the level of coordination between federal agencies when it comes to crypto policy.
“We have not seen as much evidence of that active dialogue happening between the SEC, the CFTC [and other regulators like] Treasury,” said Bitwise Asset Management general counsel and CCO Katherine Dowling in an interview.
IT’S FRIDAY — Sam is back from a week of watching coal barges float up and down the Rhine (while also enjoying a Kolsch or two). Please send tips, story ideas and feedback to [email protected].
Fed Governor Chris Waller speaks in Austria at 12 p.m. ET … Treasury’s Adeyemo speaks at the Hutchins Center at Brookings at 2:30 p.m. ET
CAN TRUMP’S SPAC BE SALVAGED? — Also from Declan: “A blank-check company that’s seeking to combine with former President Donald Trump’s social media startup has failed to round up enough investor support to extend the deal’s deadline, adding more uncertainty to the fate of the new platform. The company says it will try again next month to salvage the deal, which would clear the way for Trump Media & Technology Group, the operator of the Truth Social media platform, to eventually begin selling stock to the public — raising vital capital for the venture.”
IN DEFENSE OF REGULATORS — Our conversation with new Consumer Bankers Association President Lindsey Johnson, featured in Wednesday’s MM, hit a nerve with some readers.
Carter Dougherty, communications director at Americans for Financial Reform, writes to MM: “This new entrant wants to ‘work with’ regulators – in this case, CFPB – in a ‘more constructive way.’ As though lobbyists don’t have any opportunities for input in the regulatory process? They do. If they have a complaint on the merits, they should make it. But what lobbyists really want is for regulators to do their bidding, so they wrap the demand in words about manners and style.”
Better Markets’ Dennis Kelleher says “caricaturing regulators as detached from reality and ‘just using political or ideological talking points’ is not only wrong, but baseless and demeaning. That all-too-prevalent attitude among bank lobbyists is what is counterproductive and prevents the constructive engagement she claims to want.”
BANKS BRACE FOR CHALLENGES — Our Katy O’Donnell: “Bank profits in the second quarter fell 8.5 percent from a year earlier as lenders set aside more money to protect against potential losses, the FDIC said Thursday.”
STAYING THE COURSE — Bloomberg’s Craig Torres, Jonnelle Marte and Matthew Boesler: “Federal Reserve Chair Jerome Powell said officials won’t flinch in the battle to curb inflation, hardening expectations that they’ll deliver a third straight jumbo rate hike later this month.
“‘We need to act now, forthrightly, strongly as we have been doing,’ Powell said Thursday in remarks at the Cato Institute’s monetary policy conference in Washington. ‘My colleagues and I are strongly committed to this project and will keep at it.’”
Meanwhile in Europe — The European Central Bank raised interest rates by a record 75 basis points as new forecasts show inflation remaining above the bank’s 2 percent target for years to come, our Johanna Treeck reported from Frankfurt.
TIRED: RATE HIKES. WIRED: RATE CUTS — Dartmouth Professor David Blanchflower writes in POLITICO Magazine that now is actually the time for rate cuts: “My concern is that Fed officials are wrong and what is coming is not high inflation again but a worrisome bout of deflation. ”
QE BEDTIME READING — A new Congressional Budget Office report “examines the mechanisms by which quantitative easing — large asset purchasing programs conducted by the Federal Reserve— affects the federal budget deficit.” (TL;DR — It changes net borrowing costs and stimulates economic activity, which affects other budgetary categories.)
OIL PRICE ANGST— Bloomberg’s Saleha Mohsin: “Officials within President Joe Biden’s administration are hunting for ways to head off a feared spike in oil prices later this year, including the possibility of an additional release from the nation’s emergency crude reserves.”
U.S. GAS RESCUE THREATENS DOMESTIC BACKLASH — FT’s Justin Jacobs: “Europe is desperate for new natural gas sources as the Kremlin squeezes deliveries from Russian fields. But a US promise to plug the supply gap is threatening a domestic backlash.”
RAILROAD STRIKE — AP’s Josh Funk: “Major freight railroads, in a bid to apply pressure on unions and Congress, say a strike that could come after a key deadline passes next week would cost the economy more than $2 billion a day and disrupt deliveries of all kinds of goods and passenger traffic nationwide.”
RISE OF THE QUIET QUITTERS — WSJ’s Ray A. Smith: “The number of workers who say they are actively disengaged from their jobs—defined as workers who are unhappy about their work and resentful their needs aren’t being met—is rising, according to new research by Gallup, which has tracked workers’ investment in their jobs since 2000.”
TORNADO FALLOUT — From Sam: “The largest crypto exchange in the U.S. is funding a federal lawsuit that claims the Treasury Department overstepped its bounds when it sanctioned the decentralized mixing service Tornado Cash. Coinbase, a digital asset trading platform whose shares trade on the Nasdaq, said on Thursday that it was backing claims brought by six individuals — including two Coinbase employees — who had used the Ethereum network-based mixing service to anonymize their digital transactions.”
CRYPTO EO — From Sam: “Crypto mining could threaten long-term U.S. climate goals if regulators, watchdogs and operators don’t develop clear standards to assure the new industry stays environmentally friendly, according to a new report from the White House.”
Ben Cushman has been promoted to head of global regulatory policy for MetLife Inc. He was previously vice president on MetLife’s international government relations team, leading U.S.-based advocacy for MetLife’s business in Asia. Prior to that, he served in a variety of roles over more than a decade at the Treasury Department.
Travis Horr has joined Better Markets as director of external affairs. He served most recently as senior director of government affairs at Iraq and Afghanistan Veterans of America, and is a U.S. Marine Corps veteran.
Mortgage rates touched their highest level in nearly 14 years this week, another blow to the rapidly cooling housing market. — WSJ’s Ben Eisen
A drought that has crippled economic activity in southwestern China hints at the kind of disruption that climate change could wreak on global supply chains. — NYT’s Ana Swanson and Keith Bradsher
US household spending rosemore than twice as fast as incomes last year, with consumers splashing out on food and entertainment after pandemic lockdowns eased, according to data published Thursday by the Bureau of Labor Statistics. — Bloomberg’s Alexandre Tanzi
Correction: An earlier version of Morning Money mischaracterized an upcoming meeting of the Senate Agriculture Committee. It will be a hearing.