Republican Lawmakers Embrace Crypto As ‘Web 3.0’, Democrats Concern Investor Protection During Digital Assets Hearing

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A partisan divide over cryptocurrency regulation arose on Capitol Hill on Wednesday, when members of the House Financial Services Committee questioned the executives of some of the nation’s largest digital asset companies in a hearing.

The Democrats’ questions focused on what they called a lack of investor protection in digital asset markets and the potential for volatility in crypto markets to destabilize the wider economy, as Republicans backed down. are focused on the potential of technology to reduce the costs of financial services and create a decentralized Internet. that shifts power from big tech companies to ordinary Americans.

“Currently, cryptocurrency markets do not have a comprehensive or centralized regulatory framework, leaving investments in the digital asset space vulnerable to fraudulent manipulation and abuse,” said Representative Maxine Waters of California, President Democrat of the Financial Services Panel.

Waters also raised concerns about the impact of cryptocurrencies on the environment, saying that “the computing power needed to mine some of the coins … can rival the energy needs of entire countries like Sweden or the United Kingdom. ‘Argentina”.

Republicans focused on the idea that distributed ledger technology that enables cryptocurrencies like bitcoin BTCUSD, -1.70%, and ether ETHUSD, -0.78% to operate, could usher in the era. Web 3.0, or an Internet where the networks will work. via decentralized protocols, rather than via centralized institutions like Facebook FB, + 2.40% or Google GOOG, + 0.46%.

Brian Brooks, former acting controller of the currency and CEO of crypto firm Bitfury, described the Internet’s first version as “an organized walled garden” with “a body of content that was not interactive.” This was followed by “Web 2.0” defined by social networks that relied on and allowed users to create their own content.

“What makes Web 3.0 different is the ability to own the actual network, and that’s what the crypto assets themselves represent,” he said.

Republicans have also argued that most cryptocurrency companies are already heavily regulated by a patchwork of state and federal agencies, a point that Sam Bankman-Fried, CEO of crypto exchange FTX and Coinbase Global COIN, + 0.37% CFO Alesia Hass did in their opening remarks.

“I want to be clear that this technology is already regulated,” said Rep. Patrick McHenry of North Carolina, the leading Republican on the committee. Although “regulations can be clumsy and out of date,” he added, he warned his colleagues against further regulation of the industry “for fear of the unknown”.

According to recent comments from Chairman Gary Gensler, the Securities and Exchange Commission is currently being viewed as enforcement action against crypto exchanges that do not register with the agency as a stock exchange.

Coinbase’s Hass fought back those threats, telling lawmakers that his company was embarking on a “robust valuation” of every asset it sells on its platform, to ensure that none meet the definition of ‘a title under federal law. If a stock exchange offers securities, it must register with the SEC.

Witnesses also criticized a recent stablecoins report released by the president’s financial markets task force, which recommended that Congress pass legislation requiring stablecoins to be issued by a federally regulated bank.

“The report raises legitimate risks, but its recommended solutions go too far,” said Danelle Dixon, CEO of Steller Development Foundation, which manages the distributed network that emits the XLMUSD cryptocurrency lumens, -2.42%. “Instead, we are arguing for a regulatory approach that focuses more on stablecoin reserves by requiring that stablecoin deals be fully booked by appropriate assets.”

Stablecoins are a type of digital asset that attempts to maintain a one-to-one peg with the US Dollar DXY, + 0.12%, and are used by crypto traders to store unused funds. Advocates of the technology say it will become a major payment method for goods and services outside of the crypto world, as it is a cheaper and more efficient payment method than that offered by financial services companies. traditional.

FTX’s Bankman-Fried suggested Congress pass laws that would give primary regulatory power over the crypto industry to a single federal regulator in a new framework, but he said he would welcome tighter oversight. spot markets for cryptocurrencies like bitcoin. Although the Commodity Futures Trading Commission oversees the bitcoin derivatives markets, neither the CFTC nor the SEC conduct regular oversight of the cryptocurrency spot markets.

“I’m not concerned about more regulation,” he said. “I think protecting consumers in areas where there is not enough right now can be extremely helpful for a robust ecosystem.”

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