Congress could finally take a stand on crypto

By Chris Matthews

A U.S. stablecoin bill could come into focus in May that aims to create a new regulatory framework for digital assets

Welcome back to Distributed Ledger - your one-stop-shop for all things crypto. I'm Chris Matthews, a reporter in MarketWatch's D.C. bureau, where I cover the intersection of public policy and markets.

Political decision making around the world has always had an outsized influence on crypto markets - see the recent selloff of digital assets in the wake of tit-for-tat drone and missile strikes between Iran and Israel - and there's reason to expect U.S. policymakers to move markets in the weeks and months to come.

The U.S. Securities and Exchange Commission always bears watching as it continues its efforts to bring crypto exchanges and issuers to heel, but there's also a growing chance that Congress may step in with big policy changes in the near term.

You can find me on X @crobmatthews to share your thoughts on this week's installment and the many developments from D.C. that bear watching for crypto investors.

Optimism over stablecoin bill grows

Following the passage of a controversial foreign aid bill, Congress is now turning its attention to reauthorization of the Federal Aviation Administration, which must pass before May 10, and other bills congressional leaders believe they could attach to this legislative vehicle to attract the broad support needed to get these measures into law.

One such effort is a stablecoin bill that could create a new regulatory framework for digital assets that seek to maintain a peg to fiat currencies like the U.S. dollar. DXY

Draft legislation unveiled by Republican Sen. Cynthia Lummis of Wyoming and Democratic Sen. Kirsten Gillibrand of New York last week could provide a window into what a bipartisan compromise on this issue would look like.

The bill would effectively ban algorithmic stablecoins like the ill-fated TerraUSD and would require stablecoin issuers to either be state-chartered trust companies or banks, and would give the Federal Reserve the ability to block a state-regulated entity from issuing a stablecoin with a two-thirds majority of the Fed's Board of Governors.

A stumbling block could be the bills' lack of new mechanisms to prevent money laundering. Punchbowl News reported Sunday that a bipartisan group of lawmakers in the Senate are concerned that a stablecoin bill with no anti-money laundering provisions could help terror groups and rogue nations.

Tether (USDTUSD), the world's most popular stablecoin, is trying to get ahead of this issue after Reuters reported Tuesday that Venezuela state-run oil company has been experimenting with Tether to bypass U.S. sanctions.

Tether's place in the stablecoin leader tables could be threatened by legislation, S&P Global's lead digital asset analyst Andrew O'Neill said in a Wednesday note.

"Tether, the largest stablecoin by outstanding volume, is issued by a non-U.S. entity and therefore not a permitted payment stablecoin under the proposed bill," he wrote. "This means that U.S. entities couldn't hold or transact in Tether, which may reduce demand while boosting U.S.-issued stablecoins."

Tether did not respond to a request for comment before press time.

Jail time for CZ?

The Justice Department is asking a federal judge to sentence Changpeng Zhao to three years in prison after the Binance founder pleaded guilty to violating U.S. money laundering laws.

"The sentence in this case will not just send a message to Zhao but also to the world," the DOJ said in a court filing Tuesday.

"Zhao reaped vast rewards for his violation of U.S. law, and the price of that violation must be significant to effectively punish Zhao for his criminal acts and to deter others who are tempted to build fortunes and business empires by breaking U.S. law."

Zhao's lawyers argued in a separate filing that his decision to plead guilty, payment of a $4.3 billion fine and lack of previous criminal record call for leniency, asking the judge to sentence him to probation rather than jail time.

SEC delays decision on spot Ether ETF

The SEC pushed back the deadline by which it must decide whether to approve or block two proposed spot ether (ETHUSD) exchange-traded funds, stating in a filing Tuesday that Franklin Templeton and Grayscale will have to wait until June for its final decision.

The next important deadline on this front is May 23 and 24, when the SEC will have to decide on applications by VanEck and Cathy Wood's ARK Invest, respectively.

Analysts remain optimistic that an ether ETF will be approved at some point, even if issuers need to take the SEC to court as they did in the case of a bitcoin spot exchange-traded product.

There are subtle differences between the two cases that may cast doubt on this logic, however, as the bitcoin products were approved under a different standard than the one that prospective ether spot ETF issuers are hoping to use for their funds.

Crypto snapshot

Bitcoin (BTCUSD) is up more than 5% over the past seven days, while ether (ETHUSD) has gained about 4.5% as of Wednesday afternoon as they clawed back some of the losses sustained amid geopolitical turmoil earlier in April.

Altcoins were performing even better, with Solana (SOLUSD) gaining about 12% over that period while Cardano (ADAUSD) notched a 6% rise and Shiba Inu (SHIBUSD) posted a 17.3% increase.

Must-read

Bitcoin can restore Swiss neutrality, says activist calling on central bank to invest in cryptocurrency (MarketWatch)Bitcoin's price stable after fourth 'halving'. Here's what investors need to know. (MarketWatch)Bitcoin's issuance rate drops below gold's after recent halving (The Block)Hong Kong Crypto ETF Launches Will Test Ambition to Be Digital-Asset Hub (Bloomberg)

-Chris Matthews

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04-24-24 1503ET

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