How 1 top Democrat lost faith in crypto

From: POLITICO's Morning Money - Friday Dec 23,2022 01:02 pm

Dec 23, 2022

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Rep. Don Beyer, the Virginia Democrat who chairs the House and Senate’s joint economic committee, started 2022 like many Americans did — open-minded and curious about the promise of cryptocurrency.

He was by no means a crypto evangelist. When he led a November 2021 hearing on “demystifying crypto” and introduced legislation to regulate the market a few months earlier, he warned of significant risks.

But he also emphasized the goals of promoting innovation and U.S. jobs while giving the market legal certainty.

He thought crypto "may well have a role to play in the financial structure of our country” and so “let’s make sure it’s managed well and regulated well — not over-regulated but protecting people as appropriate.”

Crypto’s very bad 2022 has changed his mind.

“Now, I’m much more bearish about it,” he told MM this week. “We’ve seen the fraud, the disappointment, the crashes. … There’s also a sense that it’s not real, that it is just a mathematical idea. Beyond that, there’s no reality to it.”

Why it matters: Beyer’s shift is another indicator of how the tide in Washington is turning against the digital asset industry, which entered this year with more lobbying and political clout than ever before.

Now, “there’s a lot more skepticism” on Capitol Hill, said Beyer, whose Northern Virginia district lies just outside Washington.

He sees “very little value” in crypto in light of the fact that “governments are moving to digitize their own legitimate currencies.”

Just how bad it got: One of Beyer’s final actions as chair of the Joint Economic Committee is a new report detailing crypto’s failures over the past year, including the market’s $2 trillion slide since last fall.

One risk highlighted in the report is crypto’s uptake by low-income Americans. It challenges the argument made by the industry and even some Democrats that digital currency empowers individuals left behind by the traditional banking system.

“I’d compare it more to the purchase of lottery tickets,” he said. “A tax on the poor. Crypto’s the same way. You have people who don’t have the sophistication or sometimes even the access to the banking system but then they become victims.”

His meeting with another Bankman-Fried: Beyer said he never met with FTX founder Sam Bankman-Fried but was sought out by his younger brother, Gabe, and met with him. Gabe founded the nonprofit Guarding Against Pandemics with financial backing from Sam.

“There was no ask. It was like, why are you coming to see us? It was more in the context of him wanting to be supportive of Democratic candidates,” Beyer said. “Like, when you leave the meeting, you think, what was that about?”

The ask from MM — We hope you have a restful holiday. The newsletter will be off next week and will return Jan. 3. Until then, keep sending tips to zwarmbrodt@politico.com and ssutton@politico.com.

Driving the day … The omnibus is the main event …

A message from Binance:

It’s been a tough year for crypto. After unprecedented fraud and mismanagement, industry confidence has been shaken. As the world’s largest crypto exchange, Binance believes greater transparency is critical. At Binance, user assets are backed 1:1 and our capital structure is debt-free, and we are eager to work with regulators to help bring order to the markets. Learn more about our commitment to moving forward in Politico this week.

Driving the Day

The latest on the omnibus — The House is expected to pass the nearly $1.7 trillion funding bill Friday and send it to President Joe Biden for his signature. The government is set to shut down at midnight.

SBF is out on bail — Sam Bankman-Fried was released on a $250 million bond in New York Thursday while he awaits trial on fraud charges. His bail terms require him to surrender his passport and stay at his parents’ home in Palo Alto, California.

The economy fared better than expected in recent months — A couple of indicators released Thursday showed strength in the economy.

— The Commerce Department revised up its estimate of third-quarter economic growth to 3.2 percent from 2.9 percent, thanks to higher consumer spending.

— New filings for unemployment benefits rose by 2,000 last week but were in line with pre-pandemic levels, according to the Labor Department.

Biden sets expectations on inflation — Biden in a Yahoo News op-ed: “[I]t’s going to take time to get inflation back to normal levels, and we may see setbacks along the way.”

Meet the Republicans vying for Wall Street’s key committee — Our Eleanor Mueller has a rundown of nearly a dozen House Republicans vying for slots on the Financial Services Committee, which will play a major role in setting rules for cryptocurrency and investigating Biden financial regulators.

A senior House GOP aide told Eleanor there could be about 11 open seats. The list of hopefuls — a mix of incumbents and incoming members from across the country — include:

— Rep. Young Kim of California — The one-time aide to former Rep. Ed Royce, who was a senior member of the committee, is highlighting the panel’s dearth of GOP representation from the West Coast. She would also bring gender diversity to the Republican side of the committee, where Rep. Ann Wagner of Missouri is the only woman.

— Rep. Dan Meuser of Pennsylvania — Meuser led a manufacturing company and served as his state’s secretary of revenue before joining Congress.

— Rep. Byron Donalds of Florida — The former financial adviser’s priority next session, according to a spokesperson, is to ensure “our financial services institutions work for the people” and to “lessen the heavy bureaucratic hand of government stifling growth and opportunity in our financial markets."

— Rep. Mike Flood of Nebraska — The former state lawmaker, who wrote a law allowing banks to custody cryptocurrencies, has cited the presence of local financial firms including Nebraska-based Pacific Life and Mutual of Omaha.

— Rep.-elect George Santos of New York — The incoming lawmaker is facing accusations that he fabricated his resume, including claims that he worked at Citigroup and Goldman Sachs.

What about the Dems? — Eleanor reports that Democratic Reps. Sean Casten of Illinois and Jake Auchincloss of Massachusetts are seeking new committee assignments. Casten wants Energy and Commerce and Auchincloss wants Ways and Means.

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Regulatory Corner

Dan Berkovitz to leave the SEC — SEC general counsel Dan Berkovitz will step down at the end of next month, after a little more than a year at the agency.

Berkovitz’s hire was a big deal last year. Before joining the SEC, he served as a CFTC commissioner and as the CFTC’s general counsel under then-chair (now SEC chair) Gary Gensler during the implementation of Dodd-Frank.

Berkovitz is also an alumnus of former Sen. Carl Levin’s staff on the Senate Permanent Subcommittee on Investigations.

Berkovitz said in a statement Thursday that “after 34 years of public service, it is time for me to pursue new and different challenges and opportunities.”

SEC principal deputy general counsel Megan Barbero will become the agency’s general counsel when Berkovitz exits.

Maxine Waters asks FTC to probe Intercontinental Exchange deal — House Financial Services Chair Maxine Waters urged FTC Chair Lina Khan to investigate Intercontinental Exchange’s planned takeover of mortgage-data firm Black Knight, citing concerns about potential costs for the housing market.

A message from Binance:

Climate

JPMorgan says the energy crisis is derailing its climate targets — The FT: “JPMorgan … has failed to stay on-track to meet its climate change goals, blaming the energy crisis for forcing clients to ramp up fossil fuel production. …

“Reporting on these targets for the first time on Thursday, the bank said the intensity of its financed emissions linked to fuel sold by its oil and gas clients rose 1 per cent between the end of 2020 and June 2022, while the intensity measure for their operational emissions remained flat instead of falling as planned.

“Global efficiency gains in oil and gas operations had materialised more slowly than expected, the bank argued, in part because of the volatility in commodity markets.”

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Fly Around

Senate investigates carmakers’ ties to Chinese forced labor— WSJ: “The Senate Finance Committee has opened an inquiry into whether auto makers including Tesla Inc. and General Motors Co. are using parts and materials made with forced labor in China’s Xinjiang region.”

CEO of Florida’s state-backed insurer to step down — POLITICO: “The CEO of Florida’s property insurer of last resort announced on Thursday that he will be stepping down, and the company’s board will find a replacement by March.”

A takeaway from Trump’s taxes: The IRS is ill-equipped — NYT: “[The House] committee reports released this week highlight how depleted the I.R.S. has become in the last decade, as Republicans starved it of funding. They also show how the agency has become increasingly unable to crack down on wealthy taxpayers who push the legal limits to lower their tax bills and have the means to fend off audits if they get caught.”

Brookings Institution names new economics editor — University of California professor Jón Steinsson is the incoming co-editor of the Brookings Papers on Economic Activity.

A message from Binance:

It’s been a tough year for crypto. Macroeconomic headwinds have ushered in challenging market conditions, followed by unprecedented fraud and mismanagement. The combination rocked consumer confidence and created a level of skepticism about the future of crypto. Binance strongly believes crypto’s best days remain ahead, but to get there, transparency is the only path forward. At Binance, we are investing in transparency protocols to demonstrate our strong financial health. Our capital structure is debt-free and all user assets are backed 1:1. Binance does not borrow against customers’ funds or invest them without their consent. Most importantly, we look forward to working with policymakers to better protect consumers while promoting innovation. Learn more about our commitment to moving forward in Politico this week.

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