Welcome to State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government. I’m your host, Nikhilesh De.

The past two months have seen multiple government officials discuss crypto projects in the same breath as the Jan. 6 insurrection. This is a potential sign that regulators might tie cryptocurrencies to domestic terrorism.

The Subcommittee on National Security, International Development and Monetary Policy, a part of the House Financial Services Committee, will hold a hearing on Thursday titled “Dollars against Democracy: Domestic Terrorist Financing in the Aftermath of Insurrection.” While it’s unclear what the subcommittee plans to focus on, likely to come up is a December transaction of 13.5 bitcoin, worth around $500,000 at the time, to far-right figures who may have been present at the Jan. 6 Capitol Hill insurrection in Washington, D.C.

Is this part of a larger trend? U.S. goverment officials, particularly Treasury Secretary Janet Yellen, have mentioned cryptocurrencies in relation to domestic terrorism multiple times over the past two months. Congresspeople are investigating whether DLive, a crypto-based video streaming project associated with the Tron Foundation, was used to fund insurrectionists at the Capitol on Jan. 6. 

It is worth paying attention to how government officials are discussing cryptocurrencies and what that could mean for the industry.

Details are currently scarce about this week’s House hearing. There’s still no witness list or hearing memo (CoinDesk reached out to the Chair of the subcommittee, but had not heard back by press time). But here’s what we know so far:

How crypto is perceived in the halls of government will help determine what sort of regulations are enforced. The Financial Crimes Enforcement Network (FinCEN), for example, is still considering a proposed rule that would force onerous identification requirements onto crypto exchanges sending funds to private wallets. While this rule is currently on a sort of pause during an extended comment period, some version of it  could still be implemented in a few months. 

When it comes to the Jan. 6 insurrection in particular, I expect these questions to come up during the hearing:

Let’s see where lawmakers land on these issues.

NY AG’s $850M Probe of Bitfinex, Tether Ends in an $18.5M Settlement. The New York Attorney General’s office settled with Bitfinex and Tether today. In short: The companies will pay $18.5 million as a fine and provide quarterly reports breaking down how much of the USDT reserve is in cash or a cash equivalent. My initial takeaway is this seems to be a positive sign for the companies. My big question is, what do these reports look like? Will they be attestations or something else? For more details, see my full report here. 

The full House Financial Services Committee held its first hearing on the GameStop pump last week. I live-tweeted it. The 5.5 hour hearing seemed fairly positive for the crypto industry, I think, in the sense that lawmakers were largely looking at Wall Street as the villains rather than the retail traders who boosted GameStop’s share price. 

Most of the lawmakers focused on the actions of Robinhood, and to a somewhat lesser degree Citadel and Melvin Capital, rather than on the behavior of the r/WallStreetBets participants. A few representatives did ask whether posts on Reddit were being manipulated by foreign or malign actors, and whether or not the Chinese government was stealing data. But by and large the emphasis was on piecing together what actually happened or grandstanding about Robinhood’s practices.

A lot of the questions were focused on Robinhood’s suspension of GME trading (and other securities), its payment for order flow model, margin requirements, etc. 

I wrote a few weeks ago that my initial takeaway from the episode was that a properly decentralized crypto entity might be able to operate without fear of a shutdown by the Securities and Exchange Commission. So far at least, that thesis hasn’t been challenged much. Based on that initial hearing, if it’s a group of folks who aren’t just trying to manipulate a stock to make a profit off other folks, there’s not a whole lot out there to indicate they’re going to get dinged. 

Still, the SEC has yet to weigh in, though the House committee Chair ,Maxine Waters (D-Calif.), has promised to hold a hearing with the regulators to talk about GameStop. 

Side note: One of the heroes of the hearing, according to r/WSB, was Rep. Brad Sherman (D-Calif.), the famously anti-crypto congressman who once compared libra to 9/11. 

Gary Gensler, former CFTC Chair and President Joe Biden’s nominee to head the SEC, will face his confirmation hearing next Tuesday at 10 a.m. ET. Rohit Chopra, formerly of the Federal Trade Commission, will also sit for a confirmation hearing to become director of the Consumer Finance Protection Bureau. As far as I know, both are expected to be confirmed. 

If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at nik@coindesk.com or find me on Twitter @nikhileshde. 

You can also join the group conversation on Telegram. 

See ya’ll next week!