The crypto community believes his comments prove just how uninformed some of the leading crypto regulators are about the industry. Meanwhile, CFTC Chair Rostin Behnam talked about the challenges facing crypto regulation in the US due to stalled legislative progress and limited agency oversight. Coinbase also recently filed FOIA requests asking for clarity on alleged deposit caps for crypto firms.
Minneapolis Fed President Under Fire
The President of the Minneapolis Federal Reserve, Neel Kashkari, recently raised quite a few eyebrows with his dismissive remarks about cryptocurrencies during a Wisconsin Town Hall event that was hosted by the Chippewa Falls Area Chamber of Commerce. Kashkari claimed that crypto is mainly used for illegal activities, and stated that "They’re not paying for goods and services using crypto [...] It almost never happens unless people are buying drugs or other illegal activities."
Neel Kashkari speaking at the Wisconsin Town Hall event (Source: YouTube)
His statements sounded very similar to the unsubstantiated claims from past crypto skeptics in government. Naturally, this drew a lot of backlash on social media.
Castle Island Ventures partner Nic Carter responded on Oct. 22 by criticizing Kashkari's comments as not only inaccurate but also troubling, especially considering his influential position as one of the "top 10 most important financial regulators on the planet." Hailey Lennon, a partner at Brown Rudnick, brushed off Kashkari's statements by emphasizing that legitimate crypto projects implement very sophisticated anti-money laundering measures.
She also pointed out that physical cash, rather than cryptocurrencies, is still very much the preferred medium for illegal transactions. Unfortunately, these accusations are nothing new as the crypto community has been pushing back against this false narrative for a decade.
Kashkari is a long-standing Bitcoin skeptic, and voiced similar criticisms in the past. His recent comments were very similar to statements that were made by other notorious crypto opponents, including Senator Elizabeth Warren and Congressman Brad Sherman. However, blockchain data indicates that Kashkari's opinions are not supported by evidence at all.
According to a Jan. 18 report from Chainalysis, only 0.34% of all crypto transactions in 2023 were linked to illegal activity. The peak for illicit crypto transactions happened in 2019, yet only accounted for just 1.29% of total transactions over the past six years.
Share of crypto used in illicit transactions (Source: Chainalysis)
Kashkari’s comments were made not long after the Minneapolis Fed suggested that assets like Bitcoin should be either taxed or banned to help governments manage budget deficits. Researchers used Bitcoin as an example of a fixed-supply "private-sector security" that lacks "real resource claims." They concluded that addressing this issue could involve banning Bitcoin outright or imposing taxes on it to restore the feasibility of managing permanent primary deficits.
In May, Kashkari also dismissed crypto and central bank digital currencies (CBDCs) as "a bunch of handwaving world salad," and claimed they offer no advantages over existing payment solutions like Venmo. His disdain for the sector dates back even further as he previously compared Bitcoin to a "giant garbage dumpster" and called Dogecoin (DOGE) a "Ponzi scheme."
CFTC "Handcuffed" on Crypto Oversight
Misinformation about the crypto industry is not the only challenge regulators are facing at the moment. CFTC Chair Rostin Behnam recently shared some of his concerns over the stalled efforts to establish a regulatory framework for the crypto industry in the United States. He stated that the Commodity Futures Trading Commission is “handcuffed” in its ability to regulate the market effectively.
At the the Securities Industry and Financial Markets Association (SIFMA) annual meeting in New York on Oct. 21, Behnam acknowledged that legislative progress on crypto regulation “stalled out so far.” Despite the setback, he was still optimistic that the upcoming election could shift attitudes toward digital assets and technology, which could potentially lead to more progress under a new Congress and administration.
Some of the featured speakers at SIFMA annual meeting (Source: SIFMA)
Behnam also warned that without clear legislation, the CFTC is very limited in its ability to oversee the crypto market, leaving investors exposed and the industry vulnerable. He pointed out that the lack of a regulatory framework also discourages institutional money from entering the market and slows down the integration of digital assets into traditional finance.
SIFMA President Kenneth Bentsen is also concerned about the “growing frustration” in the financial sector as there many brokerage firms that are still uncertain about whether they can actually operate without facing enforcement actions.
Behnam also talked about the CFTC’s use of artificial intelligence (AI) to improve its market oversight capabilities. The agency is taking advantage of AI and advanced analytics to analyze the data it collects to help detect market manipulation and cyber threats while reducing the number of enforcement actions.
The US Treasury also recently announced that it used machine learning to help recover $4 billion in fraud and improper payments during the 2024 fiscal year. Behnam’s comments suggest that the CFTC is similarly looking to harness similar technologies to address some of the challenges in the crypto space.
Coinbase Demands Clarity on US Crypto Regulations
Meanwhile, Coinbase recently filed two Freedom of Information Act (FOIA) requests to gain some clarity on the United States regulators' approach to the ongoing crypto crackdown involving US banks. Paul Grewal, Coinbase's chief legal officer, announced the filings on Oct. 21, and revealed that the exchange is asking for information about a deposit cap that was reportedly imposed by the Federal Deposit Insurance Corporation (FDIC).
The FDIC allegedly asked banks to limit deposits from crypto companies to no more than 15% of total deposits. Coinbase believes this move was implemented without the public comment process that is usually required under US law.
The first FOIA request asks for documents that are related to the deposit cap and any measures that were taken by the FDIC and other banking regulators that may impact financial institutions' dealings with digital assets. The second request is focused on understanding how regulators responded to past FOIA requests concerning the crypto industry. These latest actions are separate from Coinbase's previous FOIA filings, which resulted in federal lawsuits over regulators’ lack of compliance.
Earlier this year, Coinbase sued the SEC and the FDIC for allegedly failing to fulfill previous FOIA requests. In 2023, the exchange asked for documents from the SEC with regards to the classification of Ethereum (ETH), as the agency had charged Coinbase for allegedly violating securities laws through its ETH staking-as-a-service offering. While spot Ethereum is classified as a commodity by US regulators, the legal status of ETH staking pools is still uncertain.
Coinbase also filed FOIAs about "pause letters" the FDIC allegedly sent to banks that instructed them to decelerate the expansion of crypto-related banking services. As part of its mission to advocate for reasonable digital asset regulation, Coinbase launched a political action committee (PAC) called "Stand with Crypto" in March, to support pro-crypto political candidates.
There is a very obvious contrast between the candidates of the 2024 US presidential election. Republican nominee Donald Trump promised to make America "the crypto capital of the world," while Democrat Kamala Harris stayed relatively quiet on the subject. According to Galaxy Research, Vice President Harris is considered more open to crypto than President Joe Biden, though she is still not as supportive as her opponent, former President Trump.
