Crypto’s Capitol Hill comeback

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QUICK FIX

The push to pass major cryptocurrency legislation has found a second wind.

Stalwart progressives atop House Financial Services and Senate Banking are opening the door to advancing landmark policy changes that could help legitimize digital assets in the U.S.

Senate Banking Chair Sherrod Brown, a longtime crypto critic, and Rep. Maxine Waters, the top Democrat on House Financial Services, hold the keys to what could be the biggest U.S. lobbying win ever for digital asset firms. A recent shift from Brown is helping breathe new life into the effort, which is being driven by Waters and retiring Financial Services Chair Patrick McHenry.

But Waters and McHenry may still need to do a delicate dance to win over Brown, who has long warned of consumer protection and illicit finance concerns with crypto and said he won’t support an “industry bill.” Sen. Elizabeth Warren, Capitol Hill’s most vocal crypto foe, is another X factor to watch in the Senate as the negotiations play out in the coming weeks and months. She has already warned Waters and McHenry of potential risks.

Enacting the first big U.S. crypto law is a legacy-defining push for McHenry, who says he is close to a deal on a bill with Waters. Their agreement could test how far crypto-skeptical Democrats are willing to go with legislation that could be a boon for the industry — and what pro-crypto Republicans might be willing to give up in return.

“There’s a lot of [crypto] skepticism,” said Rep. Brad Sherman, a California Democrat and crypto critic who is also a senior member of Financial Services. “At the same time, Maxine Waters has a lot of credibility. We’ll have to see what’s in the bill.”

The legislation would create a regulatory framework for stablecoins, a variety of digital token that’s pegged to assets like the U.S. dollar. Waters and McHenry have been seeking an agreement on a stablecoin bill for years, but eleventh-hour snags — including opposition from the White House — have derailed past efforts.

This time, they appear to be closer than ever: The duo met with Senate Majority Leader Chuck Schumer last week to pitch him on advancing their legislation.

But crypto critics could still stand in the way as they push for anti-money laundering restrictions that the industry hates.

“We cannot bring stablecoin into the financial system without full protections in place to ensure that it is not used by terrorists, drug traffickers and rogue nations,” Warren told MM this week.

Brown said Tuesday he is “very open” to working with McHenry and Waters on a stablecoin deal — a shift from the past — but indicated he wants to see it move alongside crypto consumer and illicit finance protections, as well as his other legislative priorities.

A stablecoin deal could provide Brown, who’s facing a tough reelection campaign, an opportunity to pass his other agenda items, including a bank executive compensation clawback bill, the RECOUP Act; and legislation to allow the cannabis sector access to financial services, the SAFER Banking Act.

The stablecoin effort could face resistance from crypto skeptics on Waters’ committee, some of whom pushed for changes last year when she and McHenry were close to an agreement.

“If you blindfolded us and said, ‘Do you have faith in Maxine Waters?’ We’d all raise our hands,” Sherman said. “If you blindfolded us and said, ‘are you skeptical of anything to do with crypto?’ Most of us would raise our hands.”

Rep. Sean Casten, an Illinois Democrat, told MM that during earlier negotiations “there was a lot of involvement from Dems on committee with Maxine and her staff around what we would need to see to get to ‘yes.’”

“We never got to a bill that was dropped because we never found a way to work those things in,” he said.

Waters told MM last week she hasn’t yet been whipping votes.

“It’s been 22 months learning, educating and making sure we do whatever it takes to protect the investors,” she said.

Stablecoin legislation is a priority for the Treasury Department. Treasury spokesperson Chris Hayden said in a statement that Secretary Janet Yellen “has repeatedly said that the regulatory status quo for stablecoins is unacceptable and legislation is the best way to address the risks that they pose.”

“Treasury has and will continue to engage with members of Congress that pursue bipartisan legislation that preserves existing authorities and establishes a regime designed to protect consumers and the financial system,” he said.

It’s unclear, however, how the White House and its National Economic Council — which is staffed with Warren allies — view the issue. Last summer, McHenry blamed the White House for tanking stablecoin talks. (A White House spokesperson declined to comment.)

The stablecoin drama is playing out as the crypto industry is waging a well-funded campaign to influence the November elections. Crypto super PACs are threatening to spend in Brown’s Ohio race.

“I suspect, because Sherrod’s in a tough reelect, that he’s kinda frozen,” said Sen. Cynthia Lummis, a Wyoming Republican who is the Senate’s top crypto proponent. “I think there will be very little boat-rocking going on.”

It’s Thursday — Send tips to [email protected] and stay in touch with Jasper at [email protected] and @jasper_goodman.

Driving the day

The IMF’s Kristalina Georgieva gives a press briefing on the global policy agenda at 8 a.m. … Sen. Mike Rounds and Rep. Warren Davidson discuss AI and financial services at an American Consumer & Investor Institute event in the Russell Senate Office Building that begins at 8:30 a.m. … Commerce Secretary Gina Raimondo is among the speakers at a Washington summit hosted by the Mastercard Center for Inclusive Growth that begins at 8:30 a.m. … Fed Governor Michelle Bowman gives virtual opening remarks at the New York Fed Regional and Community Banking Conference at 9:05 a.m. … Treasury Secretary Janet Yellen meets with G20 finance ministers and central bankers at 10 a.m. … FHFA Director Sandra Thompson and Acting HUD Secretary Adrianne Todman testify at Senate Banking at 10 a.m. … White House chief of staff Jeff Zients speaks at a luncheon hosted by the Economic Club of Washington, D.C.

Russian assets update — Speaker Mike Johnson is gearing for a series of tough votes on his foreign aid plan this weekend, including a bill that would let President Joe Biden seize Russian assets to support Ukraine.

Johnson is proposing a five-bill package. Aid to Israel, Ukraine and Taiwan is spread across three separate bills. The Russian assets proposal is in another bill that would also trigger the sale of TikTok.

Johnson is facing resistance from conservatives, but Biden is backing the overall plan.

Europe continues to signal resistance when it comes to potentially confiscating immobilized Russian funds. European Central Bank President Christine Lagarde said Wednesday that it would “start breaking the international legal order that you want to protect, that you would want Russia and all countries around the world to respect,” our Geoffrey Smith reports.

She also noted that Europe, where most of the assets are located, faces greater risk than the U.S.

“You’re talking about $6 billion here, and $260 billion on the other side,” Lagarde said at an event in Washington. “That puts the partners in a slightly different position.” (MM previously fleshed out Europe’s concerns here and here.)

G7 finance ministers and central bank governors addressed the issue at a meeting Wednesday and pledged to keep hashing it out.

"[W]e will continue working on all possible avenues by which immobilized Russian sovereign assets could be made use of to support Ukraine, consistent with international law and our respective legal systems, with a view to update our Leaders ahead of the Apulia Summit in June,” they said in a joint statement.

IMF warns about U.S. debt — IMF officials say U.S. spending is set to create trouble for other countries by keeping interest rates high, Bloomberg reports.

Regulatory Corner

Judge in CFPB case gets a pass on recusal — Per Michael Stratford, the federal judiciary’s Committee on Codes of Conduct said 5th Circuit Court of Appeals Judge Don Willett isn’t required to step away from a legal challenge against the CFPB’s credit card late fee cap, despite disclosing stock holdings in Citigroup.

On the Hill

Housing hearing prep — Senate Banking Chair Brown plans to signal further work on bipartisan housing legislation this morning at a hearing featuring testimony from HUD Acting Secretary Adrianne Todman and FHFA Director Sandra Thompson.

“Last month, this committee had a hearing on legislative proposals to help expand our housing supply and bring down the cost of housing,” Brown is expected to say in his opening statement. “We must continue our bipartisan work to move forward commonsense proposals that will help expand housing options and reduce costs.”

Brown will urge HUD and FHFA to “do more to be vigilant in ensuring that taxpayer money is actually serving families — not shady landlords and wealthy investors.” You can read Todman and Thompson’s prepared testimony here.

Ranking member Tim Scott plans to highlight rising mortgage rates, rent and homelessness. A spokesperson said he will “hold President Biden’s housing regulators accountable for their pursuit of additional burdensome regulations and far-left climate policies that stray from the agencies’ mission and exacerbate the unaffordability of housing.”

House advances climate, credit card rollbacks — House Financial Services in party-line votes Wednesday approved GOP resolutions that would block the SEC’s climate-risk disclosure rule and the CFPB cap on credit card late fees, Declan Harty reports.

House panel targets merger guidelines — House Small Business Chair Roger Williams is pressing the FTC and the Justice Department over the agencies’ jointly released merger guidelines.

In a letter to FTC Chair Lina Khan and Assistant Attorney General Jonathan Kanter, Williams writes that the new policies “will have a significant impact on small businesses—nearly half of which look to mergers and acquisitions (M&A) to grow—but it seems the FTC and DOJ failed to properly consider the impact the new guidelines will have on small businesses.”

FTC spokesperson Douglas Farrar said in a statement: “The FTC received thousands of comments on the merger guidelines from the public, including many small businesses. The 2023 guidelines are the first in decades that are designed to protect not just consumers, but workers and honest businesses too.”

Crypto

Another crypto campaign win — Shomari Figures, a Democratic House candidate in Alabama, won a primary runoff Tuesday after he received a significant boost from the crypto industry. The pro-crypto super PAC Protect Progress spent $2.7 million backing Figures, who previously served in the Biden DOJ and on the staff of Sen. Sherrod Brown. A separate, grassroots pro-crypto group, Stand with Crypto, also helped mobilize voters in the district.

Fly Around

People moves — Former Democratic Senate aide Sydney Paul is joining Andreessen Horowitz as a government affairs partner.