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The U.S. is seeing a lot of legislative activity around crypto regulations at the moment. The House of Representatives introduced the Blockchain Integrity Act to impose a temporary two-year ban on crypto mixers. Meanwhile, another bill, H.J. Res 109, passed in the House of Representatives challenges SEC regulations by seeking to allow banks to hold cryptocurrencies similar to traditional assets. It has, however, faced opposition from President Biden. Robinhood reported an impressive increase in crypto trading volumes, contributing to a very profitable Q1 for the platform, even as it faces regulatory scrutiny from the SEC.
Legislators Call for Temporary Halt on Crypto Mixers
People using crypto mixers are shaking in their boots as a new legislative proposal, the Blockchain Integrity Act, has been introduced in the U.S. House of Representatives. Its aim is to impose a temporary two-year ban on cryptocurrency mixers. The act is co-sponsored by Democratic Representative Sean Casten, Representatives Bill Foster, Brad Sherman, and Emanuel Cleaver. The main goal of the bill will be to address some concerns when it comes to the role of mixers in obscuring financial transactions.
Casten described that crypto mixers function by pooling cryptocurrencies which allows people to withdraw funds to a new address without revealing the connection between the initial deposit and the withdrawal addresses. The proposed bill will prevent financial entities like crypto exchanges, virtual asset service providers, and registered money service businesses from dealing with funds that have passed through a mixer. Every violation would carry a potential civil penalty of up to $100,000.
During the proposed ban, the U.S. Treasury Department will compile a detailed report. It will include the percentage of mixer transactions linked to illicit activities, legitimate applications of mixers, law enforcement's ability to trace or block such transactions, and how other jurisdictions regulate mixers.
This will not be the first time the U.S. has taken action against crypto mixers. The Treasury’s Office of Foreign Asset Control sanctioned the mixer Tornado Cash in August of 2022, a move that was later upheld in court. The founders of Tornado Cash have also faced charges related to money laundering and sanctions violations in both the U.S. and the Netherlands.
Privacy-focused digital currencies like Monero also have targets on their backs, and they have faced regulatory pressure after the introduction of new Anti-Money Laundering laws in the European Union.
House Passes Bill Overturning SEC Crypto Custody Rules
On the other hand, the United States House of Representatives also recently passed a bill that challenges existing Securities and Exchange Commission (SEC) guidelines preventing banks from holding cryptocurrencies in the same way they hold traditional assets like securities.
The bill is known as H.J. Res 109, and plans to overturn the SEC's Special Accounting Bulletin (SAB 121) that was introduced in March of 2022. SAB 121 requires banks to include cryptocurrencies held on behalf of customers in their balance sheets, which is not required with traditional custodial assets.
Republican Congressman Mike Flood, who introduced the resolution, argued that SAB 121 unfairly targets banks that want to offer crypto custody services by bemanding that these holdings be treated differently from other custodial assets. The bill received a lot of bipartisan support in the House, passing with a total of 228 votes to 182.
Biden to Veto Bill Easing SEC's Crypto Custody Regulations
Unfortunately, not everyone is very happy with the bill. Despite the bill's passage in the House, President Joe Biden expressed strong opposition and even stated that he would veto the bill should it reach his desk.
On May 8. The White House released a statement opposing the legislative move to overturn SAB 121. Biden seems to believe that such action would undermine the SEC's efforts to protect investors in the crypto markets and maintain stability in the broader financial system. The White House also pointed out that limiting the SEC’s regulatory capacity could lead to serious financial instability and uncertainty in the market.
Supporters of the bill like SEC Commissioner Hester Peirce have criticized SAB 121 and called it a barrier to regulated financial institutions wishing to serve as crypto custodians. She also claims it treats crypto assets differently from other types of assets and could prevent banks from entering the crypto custody market.
In its statement, the House Financial Services Committee (HSFC) argued that overturning SAB 121 would actually protect consumers by making it possible for highly regulated institutions to act as custodians for digital assets. HSFC Chairman Patrick McHenry criticized the bulletin as a prime example of regulatory overreach under SEC Chairman Gary Gensler’s leadership.
For now, the bill’s fate hangs in the balance with a potential presidential veto looming as it moves forward in the legislative process.
Robinhood Reports Strong Q1 Despite SEC Setback
The SEC is also seeing some pushback from other areas in the crypto industry. Robinhood's CEO, Vladimir Tenev, recently shared his disappointment about a recent Wells notice from the SEC during the company's Q1 earnings call.
Despite this setback, Robinhood reported an impressive 224% increase in crypto trading volumes, reaching $36 billion. This surge contributed to almost 40% of the firm's transaction-based revenue, which totaled $329 million. The robust crypto activity helped Robinhood secure its second consecutive profitable quarter, with net income standing at $157 million.
The SEC's Wells notice scrutinizes Robinhood's crypto listings and custodian services, which Teven called a "disappointing development". Jason Warnick, Robinhood's CFO, pointed out the company's conservative approach to coin listings and maintaining high compliance standards similar to its brokerage operations. Considering this, Robinhood's management assured its users that customer accounts are unaffected and vowed to defend the firm and advocate for their clients.
After the earnings announcement, the company's shares spiked by 7.3% in after-hours trading. Year-to-date, the company's share price increased by more than 44%.
Additionally, Robinhood also reported that it now holds $26.2 billion in crypto assets for users, a 78% increase from the previous quarter. This growth came coupled with massive market movements, including a 65.1% increase in the Bitcoin (BTC) price.
What is Robinhood?
Robinhood, a fintech broker, revolutionized the investment landscape by offering a commission-free trading platform that caters to the everyday investor. It was founded in 2013 by Vladimir Tenev and Baiju Bhatt. Robinhood made it possible for people to trade stocks, ETFs, options, and cryptocurrencies without needing a minimum account balance.
The platform gained a lot of traction during the COVID-19 pandemic, as lockdowns prompted a surge in home trading, which ended up boosting Robinhood’s annual revenue to $958 million in 2020—a 245.18% increase from the previous year. This growth was also propelled by the "meme stock" phenomenon in early 2021, exemplified by the GameStop short squeeze that was orchestrated by retail investors on the r/WallStreetBets forum.
Despite its user-friendly interface and features like commission-free trades, 1% matched IRAs, and access to crypto trading, Robinhood has faced some criticism. Critics argue that the platform makes it too easy for inexperienced investors to engage in risky trading practices. The platform has also been scrutinized for limited investment education resources, a narrow range of investment options, inadequate customer support, and technical issues during peak trading times. The SEC’s latest legal action against Robinhood is also not making things any better for the platform and its users.
