What crypto gets for its buck

Dec 24, 2024

PROGRAMMING NOTE: We’ll be off starting Wednesday for the holidays but back to our normal schedule on Monday, Jan. 6.

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QUICK FIX

Cryptocurrency firms spent big in 2024 to deliver a GOP-controlled Washington — and they got it.

Now, the policy is starting to come into focus.

Sen. Tim Scott (R-S.C.) and Rep. French Hill (R-Ark.) are set to lead the charge on the industry’s long-sought overhaul of crypto regulation as the incoming chairs of the Senate Banking and House Financial Services committees. Hill, who played point on outgoing Financial Services Chair Patrick McHenry’s digital assets legislation this Congress, was crypto firms’ top choice for the job.

Both men previewed their thinking at the Blockchain Association’s policy summit last week. In an interview in his office the next day, Hill got more granular. The former banker wants to use McHenry’s bills as a starting point for negotiations in 2025 — and says it makes sense for the House to jump-start the process, since the Senate will be busy processing President-elect Donald Trump’s nominations.

“We still will go into this new Congress with the general consensus where we ended this Congress,” Hill told your host. He added that he’s already met with Trump’s artificial intelligence and crypto czar, David Sacks, on how digital assets legislation and regulation can dovetail with each other.

Both Hill and Scott say they anticipate changes to this Congress’s bills— and that they want to work with Democrats, instead of forcing through partisan proposals. Hill says crypto firms should get ready to cede ground.

“I've talked with everybody inside the digital ecosystem,” Hill said. “I would argue to that leadership, ‘We need to make sure we stay focused on the forest … and that it is going to be a compromise process.’”

In an interview last week, McHenry warned that the industry’s ability to shape legislation will depend on its ability to give and take during the policymaking process.

“Crypto’s long-term influence is a question of their long-term engagement,” he said. “We saw this in the politics of the election, but hopefully we'll see that in the policy engagement and long-term set of politics and ensuring that it's bipartisan.”

Of course, the House and Senate Agriculture chairs will also have a say on any bill that would divide oversight of digital assets between the SEC and the CFTC. Incoming Senate Agriculture Chair John Boozman (R-Ark.) has already met with Hill to talk crypto, spokesperson Sara Lasure said — and is weighing the creation of a new panel that could take the lead on legislation.

“Senator Boozman is considering everything, including the idea of creating a more CFTC-focused subcommittee given the important risk management function derivatives markets serve, and the continued growth of the digital asset marketplace,” Lasure told your host. She added that “this is a conversation Senator Boozman will be having in the coming weeks with members of the Senate Ag Committee.”

Sen. Kirsten Gillibrand (D-N.Y.) said in an interview that she’d be interested in serving as the top Democrat on such a panel, be it on Agriculture or another committee. Her partner on several crypto bills, Sen. Cynthia Lummis (R-Wyo.), said she’s still interested in chairing Senate Banking’s new digital assets subcommittee — something Scott recommitted to creating last week.

Lummis added that the committee will prioritize scheduling testimony on “Operation Choke Point,” or regulatory pressure on banks to cut ties with clients like crypto firms.

“We're going to have hearings about the wrong-headedness of bank examiners having the power to cut people's access to capital,” Lummis said. “That will happen early.”

As for who else could populate those panels, Republicans this month named several new members of House Financial Services and Senate Banking with crypto-friendly track records. All four GOP senators who gained Banking seats have “A” ratings from advocacy group Stand With Crypto, as do four of the six House Republicans joining Financial Services (the other two do not have ratings).

“2024 was an important year for crypto in Congress and we believe it has helped set the stage for key legislation to advance in support of the industry,” Ji Kim, an alumnus of Gemini and Kraken who now serves as chief legal and policy officer at the trade association Crypto Council of Innovation, told your host. This “should be the most pro-digital asset Congress we have yet seen.”

HAPPY CHRISTMAS EVE — And thank you for reading the last Morning Money of 2024, where your host is eternally grateful to be flying out of DCA tonight with a funded government and recessed Congress. As always, Hill musings are welcome at emueller@politico.com. The captain of the ship, Sam Sutton, will be back in 2025. You can reach him in the meantime at ssutton@politico.com.

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Driving the day

A big shake-up to stress tests — The Federal Reserve is planning major changes to bank stress tests, as it grapples with an “evolving legal landscape” around regulatory powers, our Michael Stratford reports.

Conducted annually, the Fed’s stress tests are designed to evaluate how prepared the country’s largest lenders would be for a hypothetical severe economic downturn. Now, as Michael reports, the Fed is proposing changes “aimed at improving the transparency and reducing the volatility of the [tests], issues that bank industry groups have lobbied the central bank to address.”

— Bank Policy Institute CEO Greg Baer applauded the Fed’s move in a statement, calling it “a first step towards transparency and accountability.” BPI, Baer added, is reviewing the announcement and “considering additional options to ensure timely reforms that are both good law and good policy.”

Luetkemeyer hits the exits — Rep. Blaine Luetkemeyer served on House Financial Services for well over a decade — and had the edge on taking over as chair — before he decided to step down earlier this year.

Your host caught up with the former banker — and banking regulator — during his last week on the Hill to get his thoughts on:

His next steps: “I refuse to lobby,” he said. But “we may find a way to serve on some boards, or if I can find something where I can stay home and just have to do a minimal amount of work, I'd be willing to take a look at it, just to keep me busy, keep me involved. But I'm not looking. If they find me, they have to come looking for me.”

Passing Operation Choke Point next Congress: “I think it happens, because I know that Trump and [Elon] Musk both want it, and I think we've seen the last two days how much influence they have.”

DOGE’s reported proposal to eliminate banking regulators: “The CFPB is the one you could do away with.” But “they talked about the FDIC, and that I do not agree with. I want to see their plan.”

Whether lawmakers have done enough to prevent another bank failure like Silicon Valley Bank: “No, they have not. With artificial intelligence and the Chinese, we're setting ourselves up for a disaster.”

“The president of Silicon Valley told us that within 10 hours, $42 billion went out of his bank, just on a tweet. Now with FedNow, the new payment system, and with artificial intelligence, you could do that in 10 minutes.”

On the Hill

Getting ready for the Year of Tax — There’s a long and messy list of issues Republicans must resolve as they dig into how to extend Trump-era tax cuts next year, our Brian Faler reports.

“Perhaps the biggest, hardest, and so far unanswered question is how much to spend,” Brian writes. “Deficit concerns are running hot in the House, where many Republicans say a tax bill ought to be completely paid for. That’s anathema to heavy hitters like House Ways and Means Chair Jason Smith (R-Mo.) and incoming Senate Finance Chair Mike Crapo (R-Idaho), not least because it would be extremely difficult to find enough offsets to cover the projected $4 trillion cost.”

GOP lawmakers must also figure out who to stick with the bill — whether via higher tariffs, increasing the college endowment tax, cutting green energy credits, rescinding IRS funding, and cutting other government spending — and whether to “change the yardstick used to measure the cost of their plans,” as Brian puts it.

“Normally, bills are compared to what’s in the law now, which would require taking account the cost of extending the expiring tax cuts. But Crapo wants to instead compare it to current policy, which would mean extending them would appear to cost nothing.”

MORE HILL NEWS: “Trump’s big Mike Johnson decision,” from our Rachael Bade

At the Agencies

CFPB sues Walmart over driver payments… The CFPB on Monday filed a lawsuit against Walmart and the fintech company Branch Messenger for allegedly forcing more than a million delivery drivers to use costly deposit accounts to get paid, our Katy O’Donnell reports.

“Walmart and Branch Messenger opened Branch accounts for ‘Spark Drivers’ — Walmart’s ‘last-mile’ gig-worker delivery program — and told the drivers they were required to use those accounts to receive their earnings, according to the complaint filed in federal court in Minnesota,” Katy writes.

…and Rocket Companies over alleged kickback scheme — Also on Monday, the CFPB filed a lawsuit against Rocket Companies for an alleged kickback scheme involving Rocket Mortgages, Katy reports.

“Rocket Homes allegedly pressured real estate brokers and agents not to share information about products not offered by Rocket Mortgage, according to the complaint filed in federal court in Michigan. The firm also allegedly required that agents who received its referrals ‘preserve and protect’ the relationship between customers and Rocket Mortgage by steering clients away from other competing lenders.”

Musk calls out ‘overstaffed’ Fed — DOGE may have a fresh target after Musk called the Federal Reserve “absurdly overstaffed” in a post on X early Monday, Bloomberg News’ Jana Randow reports.

“The Federal Reserve Board in Washington and its 12 regional reserve banks across the US employed about 24,000 people last year. That’s significantly less than comparable institutions,” Jana points out. “In the Eurosystem, which comprises the European Central Bank and the region’s 20 national peers, the central banks of Germany, France and Italy together had more people on their payrolls.”

MORE AGENCY NEWS: “Trump’s Treasury pick urged to tap historic Gold Act powers to create US bitcoin reserve,” from our Isabella Kaminska

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