Crypto X (as in ex-Twitter) cheered on July 27 as the US House of Representatives Committee on Financial Services approved a slew of crypto-friendly legislation, including Congressman Warren Davidson’s HR 4841 “Keep Your Coins” Act HR 4841. If passed, HR 4841 would protect crypto investors’ right to self-custody their digital assets within self-hosted wallets.
To understand the HR4841 significance, let’s take a quick look at self-custody, with some background on the bill.
What is Self-Custody in Crypto?
Self-custody in cryptocurrencies refers to personally managing and securing your cryptocurrency assets. The most common self-custody format is a cryptocurrency wallet, sometimes called a “non-custodial” wallet. Metamask is a popular example.
Self-custody means you have complete control over your private keys and manage your assets directly. Private keys are cryptographic keys that allow you to access and control your cryptocurrency holdings on a blockchain. Direct control of your keys comes with benefits and responsibilities.
Proponents of self-custody say it gives investors more security, independence, privacy, and true, direct ownership. Self-custody wallets include hardware wallets, software wallets, and paper wallets. Software wallets are the most common. Each type of wallet has its own level of security and convenience.
It’s important to note that while self-custody offers significant advantages, it may not be suitable for everyone. Some users may prefer the convenience and user-friendly nature of custodial wallets or exchanges, even if it means relinquishing some degree of control.
The alternative to self-custody sees crypto users relying on third-party services like exchanges or custodial wallets to hold and manage their digital assets. Ultimately, the choice between self-custody and custodial services depends on your comfort level with managing your private keys, technical expertise, and risk tolerance.
What’s Behind the “Keep Your Coins” Act?
The Keep Your Coins Act of 2023 prohibits federal agencies from imposing restrictions on crypto self-custody. While there has been some bi-partisan support on specific bills, given the polarized state of US politics in general, it’s no surprise that US Congressional support for crypto is grouping along party lines.
Those that support the SEC’s oversight of crypto firms and prioritize consumer protection are mainly Democrats, including the Biden administration. Legislators opposed to crypto self-custody claim that the security risks from money laundering and other criminal activity outweigh the individual right to self-custody.
Those who oppose the SEC and favor a free market and individual rights approach to crypto legislation are mainly Republicans. The Keep Your Coins Act is partially in response to the FTX exchange meltdown, where thousands of investors lost approximately $7B USD.
Advocates of self-custody say it’s crucial to retain the right to self-custody for investors who want to avoid exchanges and mitigate the risk of fraud and hacking.
Some crypto watchers point out other possible motivations for opposing the bill. They say that some legislators oppose self-custody because of campaign donations from securities firms and the desire to suppress crypto’s growth as competition to the USD. Check out crypto reporter Paul Barron’s coverage on YouTube for an excellent overview of who did and said what during the hearing proceedings.
Who Is Congressman Warren Davidson, the “Keep Your Coins” Bill Sponsor?
Congressman Warren Davidson is the sponsor of HR 4841. He is a veteran, a Republican US House Representative from Ohio’s District 8, and has supported the crypto industry as early as 2019.
On April 18 of this year, he upped the ante, calling for a restructuring of the SEC and the removal of SEC Chairman Gensler. He cited several cases of abuse of power, including “Hotel California” rules for crypto, a reference to the American classic rock song by the Eagles, containing the iconic line, “Welcome to the Hotel California… you can check in anytime you like, but you can never leave”.
Congressman Davidson claims the SEC has “Hotel California” rules for crypto, referencing “the ability to check in (with the SEC) any time, but never have the ability to leave (with approval), and endless discovery with no resolution and no clarity for captives or the market.”
Political Positioning of the “Keep Your Coins” Bill
As a conservative, Congressman Davidson feels that those opposing self-custody are overstepping others’ personal freedom by seeking control over their assets. He positions the bill in the larger landscape of individual rights and limiting government surveillance.
Coinbase’s chief policy officer, Faryar Shirzad, sees historical significance in the bill because it addresses core questions about the relationship between individuals and the state. He also highlighted the bill’s stance against presumptive surveillance as a pivotal aspect of public policy.
In addition to the Keep Your Coins Act of 2023, the US House Committee on Financial Services passed other cryptocurrency-related bills during the same week. These bills include the Financial Innovation and Technology (FIT) for the 21st Century Act, the Blockchain Regulatory Certainty Act, and the Clarity for Payment Stablecoins Act.
Keep Your Coins Act Implications for Crypto Markets
Now that the bill has passed out of committee, it needs ratification by the entire US House to pass on to the Senate. If it passes approval in the Senate, it becomes law.
Crypto advocates see the recent legislation coming out of committee as the preeminent step toward removing regulatory uncertainty around cryptocurrency.
Interestingly, the prices for major coins did not surge with this news. No one knows exactly why, but we could guess that the contentious hearings show there is still much work to do to ensure passage of the bills. Bill-watcher site Govtrack.us gives the bill a 34% chance of passing.
Also, committee actions don’t usually get much public or mainstream media attention. Crypto is still very complex for the mainstream. Concepts of self-custody and blockchain resonate with less than 90% of the public. We can expect to see more mainstream coverage when these crypto bills come up for a full House vote.
Tradfi Making Crypto Moves
On the heels of recent crypto-friendly court rulings and these House Finance Committee actions, we see some significant TradFI movement in the stablecoin and crypto space. Companies with contingency plans to move into crypto have been holding off to see how the regulatory winds will blow.
From Blackrock’s ETF SEC application to PayPal’s Stablecoin announcement on August 7, US legislative action is putting the wind in the sails of some TradFi companies.
Do you self-custody or use an exchange? However you trade crypto assets, ZenLedger can help you organize everything and comply with existing tax regulations. The platform aggregates your transactions across wallets and exchanges, computes your capital gain or loss, and generates any forms you need to file. At the same time, you can access tools to help with everything from tax-loss harvesting to tracking your crypto asset prices in real time.
The above is for general info purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.
