The Breakdown - A Congressional Letter Pushing Back on Gensler's Rogue SEC

Episode Date: May 19, 2024

A reading and discussion based on https://blockworks.co/news/senate-gensler-sec-overturn-sab-121 Today's Show Brought To You By Ledger - 5% to Bitcoin Developers When You Buy https://shop.ledger.com/pages/bitcoin-hardware-wallet Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Sunday, May 19th, and that means it's time for Long Read Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link at the show notes or go to bit.ly slash breakdown pod. Well, friends, this was a fairly remarkable week in crypto. We saw a bipartisan push to repeal anti-crypto guidance that was really an anti-crypto rule that has had significant implications

for the development of the field over the last couple years. We saw Democrats going against the White House and the SEC and setting the stage for a new phase of our crypto political battles. Because of that, I think it only makes sense to read for this week, an opinion essay published on blockworks by Representative Mike Flood and Representative Wiley Nicol, one Republican and one Democrat. The fact that they got together and published this on a crypto publication speaks volumes. The piece was called It's Time to Overturn SAB 121. We need this repeal for the future of our digital economy, the safe custody of cryptocurrencies, and the good of the American investor. The opinion piece begins. Gary Gensler's Securities and Exchange Commission has made a name for

itself with its hostility towards cryptocurrency. Time after time over the last few years, His agency has repeatedly thrown up roadblocks to the common-sense regulation of digital assets and overstepped its regulatory authority. One of the SEC's most detrimental actions on digital assets came in the form of a seemingly innocuous memo known as Staff Accounting Bulletin 121 or SAB-121. SAB-121 is significant because it requires publicly traded banks to place digital assets on their balance sheet. This change contradicts a basic rule of bank custody, that bank custodial assets are always held

off balance sheet. As a result, banks are staying on the side. sidelines. These highly regulated institutions have successfully offered custodial services to the traditional financial system for decades. They are the experts in their field, and keeping them out of this market is making Americans less safe. The recent approval of the Bitcoin ETPs revealed a problem. The Bitcoin within these ETPs is not held by banks, and most have the same custodian. If Chair Gensler wishes to protect retail investors, he should take this problem seriously. Whether you love crypto or hate crypto, digital assets are here to stay.

We need to ensure American investors receive the same protections they would with any other asset class. The content of the bulletin is a problem, but the process is arguably even worse. First, Gensler's SEC issued this bulletin without conferring with the banking regulators, an obvious misstep. Then they attempted to circumvent the customary regulatory process by issuing a bulletin rather than a rule. Their process foul was so egregious that even the nonpartisan government accountability office threw a flag on it, declaring that SAB 121 is effectively a rule for the purposes of the Congressional Review Act. Last week, the U.S. House of Representatives had the chance to change the course of federal policy and restore the role of Congress in the

administrative rulemaking process. With the support of 207 Republicans and 21 Democrats, the House advanced our bipartisan resolution, HJ Resolution 109, which repeals SAB 121 under the CRA. Now the Senate is slated to take up HJ Resolution 109. We're hopeful that this bipartisan, bicameral resolution will send a message. It's time to adjust the SEC's misguided approach to digital assets. We need a repeal of SAB 121 for the future of our digital economy. the safe custody of cryptocurrencies and the good of the American investor. Hello, breakers. Today's episode is sponsored by Ledger.

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operating system, but also brings ease of use. This makes Ledger a safe and secure way to manage your digital assets without all the stress. Check out the link to the Bitcoin Ledger Nano in the show notes. 5% of all sales of the Bitcoin Ledger Nano go to support Bitcoin development. Thanks once again to Ledger for supporting the breakdown. All right, so this is, of course, a very short little op-ed. and there's nothing particularly novel or profound here, but there are a few sentiments that I think represent the shifting tides.

Easily, the standout sentence is this one. Whether you love crypto or hate crypto, digital assets are here to stay. We need to ensure American investors receive the same protections they would with any other asset class. This is something that we've been hearing increasingly from, especially Democrats who are crossing the aisle, to vote against the SEC and SAB-121.

And this is just common sense. I really think that there was a moment in the wake of the FTX collapse that the opponents of crypto thought there was a chance that this one, this one finally, was actually going to kill the thing. Crypto's critics were emboldened and of course that began Operation Chokepoint 2.0, and there was a little while there where crypto looked on the rocks. I believe that what fundamentally stemmed the tide was when BlackRock announced its Bitcoin spot ETF application. This was the largest asset manager in the world, saying that not only were crypto and Bitcoin not going to die,

but instead they were going to go mainstream. At that moment, the idea that digital assets were going away was just done. And so a common sense approach, again articulated in this letter, articulated in a number of tweets from Democrats who supported this resolution last week, was that whether you love crypto or hate crypto, digital assets are here to stay. That's big thing number one. Big thing number two is that the DC establishment, except for the most virulent parts of the anti-crypto army,

have decided that the SEC's approaches have gone too far. We recently got the censure for the way that they handled the debt box case, and you take that and combine it with the GAO saying that they didn't follow the proper channels here, and it really paints the picture of an SEC that is way more concerned with pushing crypto out than the investor protections that are its mandate, so much so in fact that they're willing to not follow the rule of law, or at least they're willing to push the boundaries of it as much as they possibly can. That is a very hard position to stand firm on, and clearly it's crumbling.

There is a third thing unspoken in this letter, but which is worth considering, which is the changing election dynamics of this. Donald Trump deciding to make this an election issue seems to have changed the way that some Democrats are thinking about this. I don't feel confident enough yet to know exactly how they're thinking about it, but it seems so far to me that the response is much less about if Donald Trump likes it, we're going to hate it even more, and instead is reflected in some of the comments I saw from Democratic leaders who said, effectively, that we can't see this issue to the Republicans. We have been saying for some time that the crypto-holding group is just too big to be ignored politically, and it seems that that's actually true now. Now, the next question is

whether President Biden follows through on his threat to veto this resolution. The answer to that, if he does, it will be a singular moment of a line being drawn in the sand. However, even without that, I do believe that this week will be seen as representative of a momentous shift in crypto's place in American politics, one that we will be talking about for a long time to come. And so, friends, that is going to do it for today's breakdown. Big thanks again to my sponsor for today's show. Check out the Ledger Bitcoin Orange Nano. 5% of sales will go to support Bitcoin development. Until next time, be safe and take care of each other. Peace.