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It’s fair to say that any initiative seeking to expand or promote cryptocurrency right now is running into some epically bad timing. Three weeks ago, Fidelity announced a “Digital Assets Account” that would allow workers to buy Bitcoin through their 401(k) retirement savings programs. Given crypto’s volatility and Big Finance’s penchant for hype-mongering that confuses investors, that looked like a terrible idea even then (as the Department of Labor said forthrightly), before the crypto crash. Similarly, this seems like an inopportune time for FTX, the company co-founded by young billionaire Sam Bankman-Fried, to propose a continuous clearinghouse 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 nominated as vice chair of supervision for the Federal Reserve, responsible for regulating the top financial institutions in the country, and he will face senators on Thursday. In preparation for that, 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 this might be a problem. But while Barr has struggled to obtain other top positions in financial regulatory circles under Biden, and was opposed by progressives for a separate Fed position in 2014 (which he did not receive), this time no real opposition to his nomination has emerged. Despite the timing, despite the importance of crypto regulation to financial stability, despite the demonstrated hazards of financial innovation in the housing bubble’s collapse, financial reformers in Congress have been content this time to give Barr a pass, regardless of his ties.
It’s not like we didn’t know about these connections already. It was public knowledge that Barr served on the advisory boards of LendingClub, the peer-to-peer online lender that had to fire its CEO over doctoring loans to attract a buyer, and Ripple, which is battling the SEC over the sale of what the government argues is an unregistered security. Barr’s disclosure states that he received $133,110 in 1099 income from LendingClub, as well as between $15,000 and $50,000 in capital gains.
It was also public knowledge that Barr was on the board of a pro-crypto and fintech group called the Alliance for Innovative Regulation. It was public knowledge that fintech and crypto professionals gushed when Barr was first floated last year as a potential pick for comptroller of the currency. It was also known that Barr was a limited partner and adviser to NYCA Partners, a fintech venture capital firm with dozens of startups in its portfolio.
That’s the source of most of Barr’s startup investments, through holdings in NYCA’s various funds. Other investments come through vested stock options in companies where Barr served as a consultant, like CLINC, Global ID (up to $250,000), GRIT Financial, SAVI, and SentiLink (up to $100,000). Barr disclosed 53,500 unvested shares in SAVI, and 96,000 unvested shares in GRIT, which offers “instant access to earned wage benefits,” per the company website. This is known as an “earned wage access” product, essentially a wage advance that’s repayable on payday. They have been likened to payday loans, and advocates have asked for them to be regulated as credit products.
Even with the crash, few in Congress have come out strongly to say that regulatory oversight is desperately needed.
Earned wage access regulation would run through the Consumer Financial Protection Bureau rather than the Federal Reserve. But the Fed’s vice chair of supervision would be likely to play a critical role in crypto regulation, where important decisions need to be made about crypto products like stablecoins, which are supposed to be pegged to the U.S. dollar but which can also collapse, as TerraUSD has recently. You would want regulators who are not enamored of (or worse, financially induced into being favorable toward) crypto, who can take the objective steps needed to protect the public.
Therefore, Barr’s involvement with crypto firms would appear to be fair game for scrutiny. As the Revolving Door Project, a Prospect partner, put it, “Especially after last week’s total collapse in the cryptocurrency market, the Fed needs a regulatory chief who everyone can trust is acting independent of pressures from industry, personal financial interests, and a desire for powerful private-sector jobs after their time in government.”
Many of Barr’s NYCA investments are minimal (less than $1,000) but could obviously balloon if one or more startups were to take off. Barr’s largest startup investment is in Built Technologies, an online platform for construction lending, which is worth between $50,000 and $100,000.
Among his other investments are Acorns Grow, an investing app that enables Bitcoin purchases through exchange-traded funds; Axoni, a blockchain infrastructure firm for financial institutions; Metrika, which gives “end-to-end visibility” to blockchain networks; Sardine AI, which helps protect digital wallets from fraud; Tint Technologies, a company that builds “crypto deposit insurance,” and Zero Hash, which builds back-end software to facilitate crypto trades.
The 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 partner with NYCA, Barr has major incentives to see fintech startups, including crypto startups, prosper.
In the disclosure, Barr vows to divest from all companies in which he has vested shares, and to terminate his partnership agreement with NYCA. The question is whether or not he can divest his mindset away from one that clearly, as his investments and partnerships demonstrate, believes that financial innovation is important for society for a variety of reasons.
But will the hearings address this mindset and its potential conflicts? Sens. Sherrod Brown (D-OH) and Elizabeth Warren (D-MA), the most likely to bring up these issues, have both endorsed Barr. It’s very unlikely that Democrats will make the financial disclosure a topic of discussion. Several members of the committee on the Republican side are quite favorable to crypto. Even with the crash, few in Congress have come out strongly to say that regulatory oversight is desperately needed, and those who have are disinclined to press Barr. And plenty of crypto-friendly officials (including Barr) were part of the Biden-Harris transition team.
Letting this go would be a mistake. With all the crypto money sloshing around Democratic primary elections, it’s clear that the industry is trying to build a force field around its activities in Washington. It would be worth penetrating that shield, simply by asking Michael Barr about his priorities on crypto regulation. It’s a critical subject with major consequences for millions of investors, as well as the nation’s overall financial health. It ought to be addressed. We’ll see if that happens at all on Thursday.
