Silvergate and SVB bite the dust: Law Decoded, March 6–13.
Last week, another major quake shook crypto markets. Silvergate Bank — a crypto-fiat gateway network for financial institutions and a significant on-ramp for cryptocurrencies in the United States — shut down operations due to liquidity problems.
A couple of days later, another Federal Deposit Insurance Corporation-insured institution, Silicon Valley Bank (SVB), was shut down by California’s financial watchdog. The bank provided financial services to several crypto-focused venture firms, including Andreessen Horowitz and Sequoia Capital, with USD Coin (USDC) issuer Circle holding around 20% of its reserves with the bank. Following the news, USDC depegged and lost over 10% of its value in 24 hours.
Some lawmakers, well known for their hostility to crypto, quickly attacked the industry. Senator Elizabeth Warren called Silvergate’s failure “disappointing, but predictable,” calling for regulators to “step up against crypto risk.” Senator Sherrod Brown shared his concern that banks involved with crypto were putting the financial system at risk and reaffirmed his desire to “establish strong safeguards for our financial system from the risks of crypto.”
The most important commentary, however, came on Sunday when United States Treasury Secretary Janet Yellen revealed that authorities were not considering a major bailout of Silicon Valley Bank. According to Yellen, the Federal Deposit Insurance Corporation is considering “a wide range of available options,” including acquisitions from foreign banks.
Biden budget proposes 30% tax on crypto mining electricity usage
Crypto miners in the U.S. could be subject to a 30% tax on electricity costs under a budget proposal by U.S. President Joe Biden to “reduce mining activity.” According to a Department of the Treasury supplementary budget explainer paper, any firm using resources — whether owned or rented — would be subject to an excise tax equal to 30% of the electricity costs used in digital asset mining. It proposed the tax would be implemented after Dec. 31, phased in over three years at a rate of 10% a year, reaching the max 30% tax rate by the third year.
Stablecoins and Ether are ‘going to be commodities,’ reaffirms CFTC chair
Stablecoins and Ether are commodities that should come under the purview of the United States Commodity Futures Trading Commission (CFTC), according to the commission’s chairman, Rostin Behnam.
In a recent hearing, senators questioned Behnam about the differing views held by the CFTC and the Securities and Exchange Commission (SEC) following the CFTC’s 2021 settlement with stablecoin issuer Tether. Behnam said, “It was clear to our enforcement team and the commission that Tether, a stablecoin, was a commodity.” Behnam’s most recent comments oppose a view held by SEC chair Gary Gensler, who claimed that everything other than Bitcoin (BTC) is a security — a claim multiple crypto lawyers rebuffed.
China announces plans for a new national financial regulator
The Chinese government reportedly has plans for a regulatory overhaul, including introducing a new national financial regulator. The reforms would mean that its current banking and insurance watchdog — the China Banking and Insurance Regulatory Commission — will be abolished. The responsibilities of this commission will be moved to a brand new administration, as will particular functions of the central bank and securities regulator.
This announcement follows a call for reforms for party and state institutions in China from President Xi Jinping. These reforms will also include a bureau for sharing and developing data resources, which will partly replace the duties of the current Office of the Central Cyberspace Affairs Commission.