Capitol Hill Heats Up With Crypto

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Brian Brooks, CEO of Bitfury Group Ltd., left, speaks during a House Financial Services Committee hearing in Washington, DC, United States, Wednesday, December 8, 2021. Photographer: Stefani Reynolds / Bloomberg

© 2021 Bloomberg Finance LP What happened

Yesterday, six crypto leaders appeared at a House Financial Services Committee hearing titled “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States,” which explored how the government should oversee and improve regulation of the industry.

Overall audience sentiment was positive towards the cryptocurrency industry, a dramatic change from previous years. This provision surprised some, but it reflects an evolving view of the benefits of cryptocurrency technology and the fear that the United States may fall behind other countries like China that have made notable progress. towards the launch of a sovereign digital currency.

Witnesses generally called for greater regulatory clarity, particularly based on how token and lending projects are currently regulated by the Securities and Exchange Commission (SEC) and the benefits to the industry of having a prudential regulator rather than the various regulators with overlapping mandates. . Interestingly, the industry perspective may have dominated the hearing testimony as no cryptocurrency critic was among the witnesses.

“I have found the discussion with the House committee on the whole productive and useful. Where we might have expected to see hostility and demagoguery, we actually encountered insightful and well-meaning questions and discussions. I am delighted to continue engaging with lawmakers and regulators to streamline the national regulatory landscape. – Samuel Bankman-Fried, Founder and CEO of FTX Key Actors House Financial Services Committee Chairperson Maxine Waters (D-CA) House Financial Services Committee Ranking Member Patrick McHenry (R-NC) Brian P. Brooks, CEO, Bitfury Group (testimonial written): Alesia Jeanne Haas, CEO, Coinbase Inc. and CFO, Coinbase Global Inc. (written testimonial) Jeremy Allaire, Co-Founder, CEO, Circle (written testimonial): Samuel Bankman-Fried, Founder and CEO, FTX (written testimonial): Charles Cascarilla, CEO and Co-Founder, Paxos Trust Company (written testimonial): Denelle Dixon, CEO and Executive Director, Stellar Development Foundation (written testimonial): Areas of Interest SEC Regulation

Today’s discussion focused on resolving the lack of clarity facing the cryptocurrency industry, especially with regulators like the SEC applying old law to new technology. As a reminder, the Howey test which is applied to token projects to determine whether one is a title is based on the 1946 Supreme Court jurisprudence on orange groves. SEC Chairman Gary Gensler has tried to restrict activities related to digital assets because he says many products look like securities or investment contracts that fall under his jurisdiction and are concerned with the protection of rights. consumers and market manipulation.

Brian Brooks, CEO of Bitfury, a cryptocurrency mining company and former comptroller of the Office of the Currency Controller, described the SEC’s approach as a barrier to cryptocurrency startups. Mr. Brooks said the US regulatory climate has pushed legitimate business overseas, hurting US competitiveness in technology and capital markets.

“What’s going on in the US is you have a new crypto project and you go into the SEC and you describe it in detail and you ask for advice and they say, ‘We can’t tell you. “, and you list it at your own peril,” Brooks said.

Stablecoins

Much of the audience explored the potential of dollar-backed stablecoins or a CBDC to ensure that the dollar remains the international standard.

In Circle CEO Jeremy Allaire’s opening statement, he stated his belief that the United States should promote the use of the dollar as the primary Internet currency, and how USDC (a stablecoin overseen by Coinbase and Circle via the Center Network) is helping to pave the way for digital dollars to be the Internet’s primary currency. Charles Cascarilla, CEO and co-founder of Paxos Trust Company also focused parts of his opening statement on the benefits that cryptocurrencies, and more specifically stablecoins, have over the existing financial system. Cryptocurrencies and stablecoins improve shortcomings in the current, expensive and slow system that leaves millions of people unbanked and underbanked.

The discussion also explored how not all stablecoins are created equal. USDC and Paxos Dollar are stable coins issued on heavily regulated exchanges like Circle, Coinbase, and Paxos. They are only backed by cash and cash equivalents such as US Treasury bonds. Other stablecoin projects, such as Tether, the largest in the world, have struggled in recent years with allegations of market manipulation and bogus claims about the reserves backing the coin. In February, Tether settled with the New York attorney general over allegations that he lied about the reservations supporting the play. Earlier this month, the CFTC ordered Tether to pay $ 41 million for similar claims. The SEC is also reportedly investigating various Stablecoin projects.

“Today’s hearing shows crypto is having an impact in Washington. The engagement of the Blockchain Association and our allies in Washington leads to a productive conversation between government and industry. It is clear from today’s hearing that the industry has turned a corner. As our members, the innovators in crypto, continue to grow, we will continue to educate. “- Kristin Smith, president of the Blockchain Association Some Lingering Reservations

Despite the brohomie, some Democrats, such as Sherman and Velasquez, have shown some skepticism in citing the financial risks of cryptocurrency, and Republicans, such as McHenry and Hill, have widely called for taking a cautious approach to enact new laws. But while some media tried to promote the narrative of a partisan divide on how to approach the industry, many industry players have actually noted that party lines generally don’t seem to dictate how parties are elected. members discuss the regulation of cryptocurrency.

This included Jeremy Allaire, CEO of Circle, who tweeted, “Some of the quick reads I’ve seen from the media coverage don’t, I think, reflect what we all felt from the conversations. Crypto, stablecoins, and markets are not partisan issues. The level of engagement was high and the members took it very seriously. Very thoughtful questions on so many issues from so many members across the aisle. There was a real commitment to engage and understand. Many Democrats seemed open to the technology and the potential it brings.

Even the American Bankers Association submitted a comment on the hearing and said it welcomes the hearing and recognizes that more work is needed on the rules for digital assets. The American Bankers Association said in a letter to the committee that businesses offering banking-type services should benefit from banking-type regulation.

“Crypto has had its day in Washington. Leading CEOs provided their vision for the future of innovations that technology can provide. Lawmakers welcomed all participants and were genuinely interested in the benefits of innovation that can be harnessed in Web 3.0. The hearing was an extremely positive day for the industry and will lead to a coordinated bipartisan push to establish an appropriate regulatory framework. »- Michelle Bond, CEO of ADAM Key figure

According to a recent survey, 16% of Americans reported using cryptocurrencies such as Bitcoin and Ether.

Outlook

In general, the main outcome today was positive for the future of regulation in the industry. Members of Congress heard comments on the promises of cryptocurrency and blockchain technology to accelerate and reduce the costs of traditional payment rails and the revolutionary qualities of decentralization that would help individuals regain control of the economy. ‘Internet to giants like Google. This “Web 3.0” concept is a key part of the crypto lobby discourse in Washington.

Next week

That said, Washington is not yet done with crypto. The Banking Senate has a stablecoins hearing next Tuesday and it will likely be more skeptical of this emerging asset class. Unlike yesterday’s audience, there will be fewer industry advocates and non-cryptocurrency industry leaders. The witnesses will be: Ms. Alexis Goldstein, Director of Financial Policy, Open Markets Institute; and Professor Hilary J. Allen, American University Washington College of Law. Additional cookies may be added at a later date.

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