Chairman McHenry Sharply Criticizes U.S. Treasury and IRS Over Digital Asset Reporting Proposals

Chairman of the House Financial Services Committee, Patrick McHenry, has publicly voiced his concerns over the Notice of Proposed Rulemaking on digital asset reporting requirements issued by the U.S. Department of the Treasury and the Internal Revenue Service (IRS). The proposed regulations, which were announced on August 25, 2023, are part of the Infrastructure Investment and Jobs Act.

Chairman McHenry stated, “The notice of proposed rulemaking on digital asset reporting requirements is another front in the Biden Administration’s ongoing attack on the digital asset ecosystem.” He emphasized that following the passage of the Infrastructure Investment and Jobs Act, lawmakers from both parties had clearly expressed that any proposed rule should be “narrow, tailored, and clear.”

While McHenry acknowledged the delayed effective date and exemptions for other activities in the proposed rule, which he said mirrored his bipartisan bill, the “Keep Innovation in America Act,” he also pointed out its shortcomings. “However, it fails on numerous other counts. Any additional rulemakings related to the other sections from the law must adhere to Congressional intent,” he added.

The Chairman further urged the Biden Administration to cease its efforts to undermine the digital asset ecosystem in the U.S. and collaborate with Congress to establish clear regulations for the industry. He expressed his commitment to advancing his bipartisan solution, the “Keep Innovation in America Act,” to rectify these reporting requirements, safeguard the privacy of market participants, and ensure the digital asset ecosystem thrives in the U.S.

Chairman McHenry is the lead sponsor of H.R. 1414, the “Keep Innovation in America Act,” which aims to amend the digital asset reporting provisions in the Infrastructure Investment and Jobs Act. The bill has garnered support from a bipartisan group of colleagues, including Rep. Ritchie Torres (NY-15).

For context, the proposed regulations by the Treasury and IRS aim to mandate brokers to report sales and exchanges of digital assets conducted by their customers. The regulations are designed to address ambiguities surrounding digital assets, including defining brokers and introducing a new reporting form, Form 1099-DA. IRS Commissioner Danny Werfel commented on the regulations, emphasizing their design to “end confusion involving digital assets” and ensure that “digital assets are not used to hide taxable income.”

Public feedback on these proposed regulations is open until October 30, 2023, with a public hearing scheduled for November 7, 2023.

There are widespread criticisms regarding the proposed regulations, in addition to those expressed by Chairman McHenry. Chye-Ching Huang from the Tax Law Center at NYU Law voiced concerns with an article titled “U.S. Will Likely Lose Billions Due to Unacceptably Long Delay for Digital Asset Reporting Requirements“, over the “unacceptably long delay” in releasing the proposed rules. The Center pointed out the decision to postpone full implementation of these requirements until 2026, a two-year delay from the original statute. They warned of the financial implications of this delay, suggesting that the Treasury and IRS might lose out on billions due to tax non-compliance for digital asset transactions in 2023 and 2024.

The Tax Law Center further emphasized that the Treasury and IRS had other viable options to implement these reporting requirements in a timely manner, allowing for public input and system development.

Image source: Shutterstock


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Stablecoins Could Bolster U.S. Dollar and Economic Competitiveness: Circle CEO

In a compelling testimony delivered to the House Financial Services Committee, Jeremy Allaire, CEO and Co-Founder of Circle, underlined the significant role stablecoins, such as the U.S. Dollar Coin (USDC), could play in strengthening the global position of the U.S. dollar. Allaire focused on the urgent need for the United States to lead the development of regulatory frameworks that promote growth and safety in the digital assets market.

A seasoned pioneer in the technology and financial sectors, Allaire highlighted how USDC, a leading digital currency tied to the U.S. dollar, is instrumental in advocating for a technologically superior, safe, and widely accessible U.S. dollar. He pointed out that the steps taken by the U.S. government in the near future would have profound implications on the competitiveness of the dollar for the coming decades.

The Circle CEO emphasized the rising demand for secure, internet-based dollars, asserting that with a robust regulatory framework, this market could potentially serve billions of users and handle trillions of dollars in payment activity. He also drew attention to the rapid progress of alternate payment systems and technological advancements such as 6G networks, quantum computing, and artificial intelligence, which could impact the supremacy of the U.S. dollar.

Allaire’s statement to the Committee also shed light on the importance of the stablecoin bill, a key piece of legislation he deems critical to the establishment of a vibrant and secure digital asset ecosystem. He advocated for robust supervision of stablecoin issuers, stringent requirements for asset backing of digital dollars, and measures to prevent the circulation of counterfeit digital dollars.

The Circle CEO addressed four unresolved issues, which, in his view, the Committee needs to tackle. These include clarifying the roles of state and federal banking regulators, addressing reserve requirements, determining how financial institutions should manage payment stablecoins, and establishing stringent measures to prevent the proliferation of illegitimate digital dollars.

Allaire ended his testimony with an urgent appeal to lawmakers, urging them to ensure the U.S. dollar remains competitive in an era of rapidly evolving technological innovation. Highlighting the critical crossroads facing the U.S. dollar, Allaire called for regulatory decisions that will foster a secure and thriving digital currency landscape, thereby maintaining America’s economic competitiveness and international influence.


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SEC Chief to Testify Before House Committee on Crypto Oversight

Gary Gensler, the current chairman of the United States Securities and Exchange Commission (SEC), is set to testify before the House Financial Services Committee on April 18. This hearing will mark the first time that Gensler will face questions from the committee and provide an opportunity for the committee to exercise its jurisdiction over all aspects of the U.S. financial services sector, including banking, securities, and digital assets.

During an interview with Representative Patrick McHenry, chairman of the Financial Services Committee, it was confirmed that the hearing would focus on Gensler’s approach toward the crypto ecosystem. McHenry noted that the committee would take a serious approach in laying down a regulatory sphere for digital assets and expressed concerns about Gensler’s rulemaking and approach toward crypto assets.

Gensler’s approach toward crypto has been a topic of concern for many in the industry. Some Democratic party members have voiced their concerns about his approach, which they fear could be disastrous for the party’s 2024 election campaign. Many pro-crypto and pro-Bitcoin Democrats are lining up to voice their opposition to the party’s stance. Dennis Porter, the co-founder of the Satoshi Action Fund, believes that the party’s anti-crypto stance could have negative consequences for its electoral success.

U.S. regulators have taken a hard stance on crypto in the first months of 2023. The SEC has issued Wells notices to several crypto firms, including Coinbase, and the Commodity Futures Trading Commission has filed a new lawsuit against Binance. The crypto community has always highlighted that regulations would be decided by Congress, not individual agencies.

The hearing will provide an opportunity for Gensler to clarify his approach toward crypto and provide insight into the SEC’s regulatory plans. The crypto industry has long awaited clear regulatory guidance, and this hearing could provide much-needed clarity for the industry.

In recent years, the crypto ecosystem has experienced significant growth, and as a result, the need for regulatory oversight has become increasingly pressing. The lack of clear regulatory guidance has hindered the industry’s growth and led to uncertainty for investors and traders alike. The House Financial Services Committee’s oversight hearing with Gensler could provide an opportunity for the committee to establish clear guidelines for the industry and help foster its growth in a regulated environment.

In conclusion, the SEC chief’s upcoming testimony before the House Financial Services Committee on April 18 will be a crucial moment for the crypto ecosystem. The hearing will provide an opportunity for the committee to exercise its jurisdiction over the U.S. financial services sector and lay down a regulatory sphere for digital assets. It will also provide Gensler with an opportunity to clarify his approach toward crypto and provide insight into the SEC’s regulatory plans, which could provide much-needed clarity for the industry.


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Congress Hearing Bodes Well for Stablecoin Issuers

Key Takeaways

  • The House Financial Services Committee met to discuss stablecoins yesterday.
  • Committee members mostly argued that stablecoin issuers should not have to become regulated banks.
  • U.S. regulators have been watching stablecoins closely over the last year. How the technology will be regulated remains unclear.

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The committee mostly argued that stablecoin issuers should not have to become insured depository institutions. 

Committee Discusses Stablecoin Report

Stablecoin issuers may escape the Biden Administration’s recommendation of limiting distribution to insured banks and credit unions. 

In a Tuesday hearing, members of the House Financial Services Committee mostly agreed that stablecoin issuers should not have to become insured depository institutions. The committee met to discuss a November report on stablecoins published by the President’s Working Group on Financial Markets. 

While members of the committee were in agreement that stablecoins need a balanced regulatory framework, both Republicans and Democrats in attendance opposed the President’s Working Group proposal to limit stablecoin issuance to banks. 

Rep. Tom Emmer, R-Minn., who’s shown strong support for the crypto industry in the past, criticized the report and remarked that “banks should not be the only institutions in the ecosystem with dibs to issue the potential array of financial products that the President’s Working Group report simply lumps together as a stablecoin.”

“It occurs to me that limiting stablecoin issuance to insured depository institutions, which have a high barrier to entry, could limit competition,” added Rep. Gregory Meeks, before arguing that imposing a limit could impact racial equality due to the high proportions of people of color that do not use traditional bank services. 

Other key topics discussed during the four-hour discussion were the potential risks of stablecoins, including the impact their growth could have on the U.S. dollar. As stablecoins typically track the price of traditional currencies like the dollar, regulators have long feared that they could threaten its supremacy as the world’s reserve currency. 

Still, the conclusions the committee reached on whether stablecoin issuance should be limited to banks and credit unions will likely be well received by the likes of Circle and Tether, the issuers of crypto’s most popular two stablecoins, USDC and USDT. As crypto has grown over the last year, fears surrounding stablecoins like USDC and USDT have escalated in the U.S. The Treasury and Federal Reserve has warned of the risks of stablecoins, raising questions about how companies like Circle and Tether may be regulated in the near future. 

While the Biden Administration has pushed to limit stablecoin issuance and regulate the sector with strict oversight, members of the House Financial Services Committee appear open to embracing stablecoins as crypto technology gains adoption. 

Disclosure: At the time of writing, the author of this feature owned USDC, ETH, and several other cryptocurrencies. 

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Robinhood CEO May Testify Before US House Committee Over GameStop Allegations

Robinhood CEO Vlad Tenev is expected to testify before the U.S. House Financial Services Committee on Feb. 18 following accusations the trading platform worked with large hedge funds to halt trading on GameStop stock, among others.

According to a report by Politco on Monday, Tenev will likely appear before a virtual hearing titled “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide.”

The hearing, which kicks off at around 17:00 UTC, is being chaired by Congresswoman Maxine Waters (D-Calif.) who has already voiced her concerns over Robinhood’s actions.

“I am concerned about whether or not Robinhood restricted the trading because there was collusion between Robinhood and some of the hedge funds that were involved with this,” Waters said on MSNBC as cited in Politico.

Last Thursday, Robinhood limited the ability for traders to buy GameStop and other stocks targeted by Reddit group WallStreetBets, which aimed aimed to cause financial harm to large hedge funds by causing a “short squeeze.”

Tenev said his platform did so to protect itself and customers during a tumultuous trading period where demand outstripped its ability to facilitate obligatory deposits to clearinghouses.

The CEO denied his platform was “directed by a market maker or any other market participant,” saying instead the decision was based on a “technical and operational” one.”



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US Congress Plans Hearings on GameStop Market Pumps

Congress plans to hold hearings on short sellers, digital trading platforms and WallStreetBets pumping GameStop stock 25-fold. 

The price of GameStop ($GME) stock nearly hit $500 per share on Thursday, after a week of meteoric rises instigated by users of the WallStreetBets community on Reddit and bolstered by other retail traders. 

These everyday traders forced a GME short-seller to close its position and accept a loss of billions of dollars, suggesting that Wall Street doesn’t quite have a monopoly on controlling the stock market. On Thursday, Robinhood and other retail trading platforms suspended purchases of GameStop, as well as AMC and other shares pumped by WallStreetBets in recent days.

The question now is how the U.S. government will react. As of Thursday afternoon, multiple lawmakers were planning hearings around the situation. 

Representative Maxine Waters (D-Calif.), chairwoman of the House committee, said in a statement that hedge funds “have a long history of predatory conduct” that she called indefensible. 

“As a first step in reining in these abusive practices, I will convene a hearing to examine the recent activity around GameStop (GME) stock and other impacted stocks with a focus on short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors,” she said. 

She added that hedge funds must be dealt with, though she does not appear to be looking at the WallStreetBets users or other retail investors who pumped a number of stocks to sky-high prices. 

Details weren’t immediately available for the Senate committee hearing. 

Financial regulators might be less well-equipped to respond to the trading or the suspensions. 

Fox Business reporter Charles Gasparino reported that the SEC is planning to investigate whether Reddit commenters manipulated the stock market in pumping GameStop and other company share prices. However, it’s unclear what these regulators could actually do.

One attorney with experience in the securities markets, who requested anonymity due to the lack of clarity around the issue, told CoinDesk that the SEC doesn’t have much leeway in this situation.  

“What are they going to do? Prevent people from having chatrooms on a social media site? This isn’t even a pump and dump, because a pump and dump is a centralized effort by a handful of parties to move a stock,” the attorney said. “This is an effort by an entire community, by hundreds of people or perhaps thousands of people who are putting in a couple dollars here and there, and it works.”

CoinDesk reached out to the Consumer Financial Protection Bureau (CFPB), Federal Trade Commission (FTC) and Securities and Exchange Commission (SEC). The FTC declined to comment. The CFPB referred CoinDesk to the SEC, which also declined to comment. 

White House Press Secretary Jen Psaki referred reporters to an SEC statement about monitoring the situation during a press briefing Thursday. 

Asked if President Joe Biden or the administration was looking at Robinhood’s actions, Psaki said, “He’s briefed by his economic team frequently but we don’t have anything more for you … I don’t have anything more for you on this.”



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