Congressional Republicans have Gary Gensler in their crosshairs

Hi, Leo Schwartz here with Wednesday’s Proof of State edition of the newsletter.

Crypto has a new center of gravity in Congress: the House Financial Services Committee. In his new role as chair, crypto advocate Patrick McHenry (R-N.C.) secured the committee’s bona fides by creating a first-of-its-kind subcommittee focused on digital assets. 

Fortune caught up with Rep. French Hill (R-Ark.), the newly appointed chair for the subcommittee, to learn about the group’s priorities ahead of a pivotal congressional session for the crypto industry. Hill is listed by Coinbase as “very supportive” of crypto, but his relationship with the fledgling technology has been more understated than some of his colleagues on Financial Services, such as Tom Emmer (R-Minn.).

Even so, Hill is in a difficult position in the wake of FTX’s collapse and impending trial of its former CEO and onetime Washington mainstay, Sam Bankman-Fried—developments that will make it harder to persuade his skeptical counterparts to pass wide-ranging legislation to oversee the crypto industry.

“I don’t want to throw the baby out with the bathwater thinking through potential next steps in financial technology,” Hill said.  

A key area of focus will be stablecoin regulation. The sector has been a target for McHenry, who worked on a bipartisan bill with the previous chair, Maxine Waters (D-Calif.), although they hit sticking points on key provisions like states’ regulatory authority. Hill said that the subcommittee plans to resume these discussions, including related ones with the Federal Reserve and Treasury Department.

Even higher on the agenda will be a public hearing with the crypto industry’s top nemesis, Securities and Exchange Commission Chairman Gary Gensler, whom critics accuse of engaging in “regulation by enforcement.” While Hill was not part of the so-called Blockchain Eight, a bipartisan group of congressmen who drafted a letter seeking clarity on the SEC’s crypto approach in March, Hill is sympathetic to their view.  

“The chairman asserted he was the cop on the beat,” Hill said. “And yet, we didn’t see any evidence of oversight or regulatory jurisdiction in a rigorous way when it came to, particularly, the FTX matter.” 

Hill pointed to a flurry of activity that has since come from the SEC, including charges against Bankman-Fried and top FTX executives, as evidence that the agency could have taken prior steps to prevent the collapse. The question is when Gensler will be called in front of the House Financial Services Committee, which will surely be one of the marquee crypto hearings of the winter.  

Hill said that the committee still has some basic housekeeping to accomplish first, including selecting the full roster of Democrats, which he hopes will happen this week. He brushed off the allegation of some Democrats that it is a conflict of interest for Financial Services members to take donations from crypto companies, as the committee weighs regulation.  

“That’s a responsibility for each member to determine if they take funds from an entity that they now don’t have confidence in,” Hill said. “I don’t think that in and of itself is disqualifying.” 

Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz

DECENTRALIZED NEWS

Binance acknowledged that it kept collateral for tokens it issued in the same wallet as customer funds in error. (Bloomberg) 

French lawmakers softened their stance on requirements for crypto companies as the country prepares for EU-wide regulation. (CoinDesk) 

Crypto-focused companies are struggling to go public amid intense scrutiny from the SEC. (Wall Street Journal) 

Solana has jumped 140% this year after experts predicted its days were numbered. (Fortune) 

Investigators are looking into a $400 million investment from FTX into an obscure crypto hedge fund with close ties to Sam Bankman-Fried. (New York Times) 

MEME O’ THE MOMENT

Crypto Twitter was uncharacteristically quiet yesterday: