It’s fair to say that any initiative to develop or promote cryptocurrency right now is hitting an epically bad time. Three weeks ago, Fidelity announcement a “digital asset account” that would allow workers to purchase Bitcoin through their 401(k) retirement savings programs. Given the volatility of crypto and Big Finance’s penchant for hype that confuses investors, this already sounded like a terrible idea (like the The Department of Labor said frankly), before the crypto crash. Likewise, it seems like an inopportune time for FTX, the company co-founded by young billionaire Sam Bankman-Friedpropose a continuous clearing house for Bitcoin-related products that will encourage retail investors to trade crypto assets more frequently.
The same questionable timing dynamic could play out in a Senate Banking Committee confirmation hearing this week. Michael Barr has been named vice president for oversight of the Federal Reserve, responsible for regulating the nation’s major financial institutions, and he will face senators on Thursday. In anticipation of this, Barr submitted his financial disclosure form on Monday, revealing investments in 82 separate financial technology, or fintech, startups, including several directly related to cryptocurrencies.
You would think that could be a problem. But while Barr struggled to secure other high-level positions in financial regulatory circles under Biden, and was opposed by progressives for a separate Fed post in 2014 (which he did not receive), this time no real opposition to his nomination emerged. Despite the timing, despite the importance of crypto regulation to financial stability, despite the demonstrated dangers of financial innovation in the collapse of the housing bubble, financial reformers in Congress were content this time to give a let switch to Barr, regardless of his ties.
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It’s not like we don’t already know about these connections. It was common knowledge that Barr served on the advisory boards of LendingClub, the peer-to-peer online lender that had to fire its CEO on doctor loans to attract a buyer, and Ripple, which is fight the SEC on the sale of what the government claims is an unregistered title. Barr’s disclosure says he received $133,110 in 1099 income from LendingClub, as well as between $15,000 and $50,000 in capital gains.
It was also common knowledge that Barr served on the board of a pro-crypto and fintech group called the Alliance for Innovative Regulation. It was common knowledge that fintech and crypto pros gushed when Barr was first touted last year as a potential pick for Comptroller of the Currency. Barr was also known to be a sponsor and adviser to NYCA Partnersa fintech venture capital firm with dozens of startups in its portfolio.
It is the source of most of Barr’s start-up investments, through stakes in various NYCA funds. Other investments come from stock options acquired in companies where Barr has consulted, such as CLINC, Global ID (up to $250,000), GRIT Financial, SAVI and SentiLink (up to $100 $000). Barr disclosed 53,500 unearned shares in SAVI and 96,000 unearned shares in GRIT, which provides “instant access to earned salary benefits.” by company website. This is called an “earned wage access” product, essentially a payday advance that is repayable on payday. They have been likened to payday loans, and advocates have called for them to be regulated as credit products.
Even with the crash, few members of Congress have spoken out forcefully that regulatory oversight is desperately needed.
Regulation of access to earned wages would go through the Consumer Financial Protection Bureau rather than the Federal Reserve. But the Fed’s Vice President of Oversight would likely play a vital role in crypto regulation, where important decisions have to be made on crypto products like stablecoins, which are supposed to be pegged to the US dollar but can also crash, as TerraUSD recently did. You want regulators who are not enamored with (or worse, financially incentivized to be sympathetic to) crypto, who can take the objective steps necessary to protect the public.
Therefore, Barr’s involvement in crypto businesses seems like fair game for scrutiny. Like the revolving door project, a Perspective partner, say, “Especially after last week’s total collapse in the cryptocurrency market, the Fed needs a chief regulatory officer who everyone can trust to act independently pressures from industry, personal financial interests and the desire for powerful jobs in the private sector after their time in government.
Many of Barr’s NYCA investments are minimal (under $1,000) but obviously could swell if one or more startups were to take off. Barr’s biggest startup investment is in Built Technologies, an online platform for construction loans, which is worth between $50,000 and $100,000.
Other investments include acorns growan investment app that lets you buy bitcoins through exchange-traded funds; Axonia blockchain infrastructure company for financial institutions; Metrikawhich gives “end-to-end visibility” to blockchain networks; Sardine AIthat helps protect digital wallets against fraud; Tint Technologiesa company that builds “crypto deposit insurance” and Zero hashwhich builds back-end software to facilitate crypto transactions.
Investments range from less than $1,000 to somewhere between $15,000 and $50,000 (Acorns Grow). But the bigger issue is that as a limited NYCA partner, Barr has major incentives to see fintech startups, including crypto startups, thrive.
In the disclosure, Barr pledges to divest itself of all companies in which it has acquired stock and to terminate its partnership agreement with NYCA. The question is whether or not it can shed a mindset that, as demonstrated by its investments and partnerships, clearly believes that financial innovation is important to society for a variety of reasons.
But will the hearings address this mindset and its potential conflicts? The senses. Sherrod Brown (D-OH) and Elizabeth Warren (D-MA), most likely to raise these issues, both endorsed Barr. Democrats are highly unlikely to make financial disclosure a talking point. Several committee members on the Republican side are quite crypto-friendly. Even with the crash, few members of Congress have spoken out forcefully that regulatory oversight is desperately needed, and those who have are not inclined to pressure Barr. And many crypto-friendly officials (including Barr) were member of the Biden-Harris transition team.
Giving up would be a mistake. With all the crypto money wading around the Democratic primary election, it is clear that the industry is trying to create a force field around its activities in Washington. It would be worth penetrating that shield, simply by asking Michael Barr about his crypto regulatory priorities. It’s a critical topic with major consequences for millions of investors, as well as the nation’s overall financial health. It should be addressed. We’ll see if that happens at all on Thursday.