Before We Regulate Crypto, We Need To Know What Crypto Is | Daniel Kuhn

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The government needs to know more about crypto before it can regulate it.

That was the central premise of a congressional hearing yesterday devoted to the risks crypto presents to retail and institutional investors. The hearing was provocatively titled: America on FIRE: Will Crypto Frenzy Lead to Financial Independence and Early Retirement or Financial Ruin?

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“Today’s hearing will assess the systemic risks to the economy, as well as the risk of loss for individual investors caused by recent periods of extreme volatility in crypto assets that are not backed by any form of tangible collateral. said Rep. Al Green (D-Texas), kicking off the event.

CoinDesk editor-in-chief Nik De said yesterday’s Capitol Hill meeting appeared to be more of a fact-finding mission for Congress than a witch hunt. (He tweeted the event live if you want a full preview.)

Finding facts could be a difficult task in crypto. Despite the fact that the industry is (mostly) built on fully transparent and audible registers, there is a remarkable amount that is unknown. For example, what exactly is the size of this industry? How many cryptocurrencies are there?

First of all, it should be noted that there is no official public data source for cryptocurrency prices, market size, or volatility. This lack of data is a significant problem, said Sarah Hammer, executive director of the Stevens Center for Innovation and Finance at the Wharton School at UPenn.

Financial regulators are at a distinct disadvantage in assessing their regulatory options, she later added, conceding a general lack of knowledge.

Hammer brings up an important point: Before regulators can get a clear picture of the risks to consumers or the economy as a whole, they need to have a better understanding of crypto. She noted that before the financial crisis of 2007-2008, there were no official data sources for credit default swaps (the derivative that blew everything up in the world’s largest banks) or clarity on how to regulate them.

Of course, there are a number of independent and trusted data sources in crypto. But sometimes even getting a clear answer on the price of bitcoin can be intimidating. Fractured markets mean that there is no unified price, only various estimates using different measures.

A similar question was raised this week when a judge dismissed the US government’s case against Facebook for monopoly practices. United States District Court Judge James Boasberg wrote in an opinion: The failure of the Federal Trade Commissions to offer any indication of the metric (s) or method (s) used to calculate Facebook’s market share makes his argument too speculative and conclusive to go ahead.

Boasberg has given the government 30 days to come up with a metric that measures the size of the social media economy and the amount of attention Facebook has captured. It will be a difficult task.

Of course, the government is not pursuing crypto lawsuits, but it is trying to answer a similar size question.

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