Crypto Heads tell US Lawmakers: We Need Bespoke Regulation
They wore suits, ties, and button-down shirts as they testified before the U.S. Financial Services Committee on Wednesday. Yes, that’s right. The CEOs of six major cryptocurrency companies looked just like execs from any other industry as they made their case to lawmakers that any regulation in crypto should be written just for crypto.
“Without tailored legislative solutions that are openly debated with public participation, the United States risks unnecessarily onerous and chilling laws and regulations,” summarized Alesia Haas, chief executive of Coinbase Inc.
The tone of the hearing, titled “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States,” was markedly different from one held two years ago when Meta CEO Mark Zuckerburg was grilled about Facebook’s plans for its digital coin.
“I came in expecting some hostility and grandstanding, but instead found the discussion to be by and large productive and helpful,” tweeted FTX CEO Sam Bankman-Fried. “I’m excited to keep engaging with lawmakers and regulators to refine the regulatory landscape.”
Bankman-Fried was one of six CEOs who participated in the hearing, along with Circle CEO Jeremy Allaire, Bitfury CEO Brian Brooks, Paxos CEO Charles Cascarilla, Stellar Development Foundation CEO Denelle Dixon, and Haas all testified.
U.S. Representative Maxine Waters, chair of the committee, opened the hearing with a statement that sounded very similar to the position of the U.S. Securities and Exchange Commissioner Gary Gensler.
“Currently, cryptocurrency markets have no overarching or centralized regulatory framework, leaving investments in the digital-asset space vulnerable to fraud, manipulation and abuse,” said the congresswoman who hails from California.
But the crypto giants pushed back, insisting that despite the risk for fraud, manipulation, and abuse — all which can happen in the traditional fiat market — the benefits of digital currencies prevail.
“When you look at the number of people who are underbanked or unbanked, both in the United States and globally, it’s indicative of a system that does not work for everyone,” Bankman-Fried said.
Paxos CEO Charles Cascarilla also emphasized the need for tokenized dollars. “What people want for their everyday spending is dollars,” he said. Paxos describes itself as “the first regulated blockchain infrastructure platform.
While acknowledging that regulation is needed, he, like Haas, made the case for creating a new regulatory framework specific to crypto.
“The solution is not to shoehorn digital asset operations into a regulatory system designed for earlier generations of financial assets,” he said. “We have an opportunity to learn from past failures and build something more efficient and effective.
Lawmakers appeared to be split along party lines, with Democrats not too keen on crypto and Republicans offering more support.
“Top Democrats showed a clear skepticism toward the financial risks associated with crypto trading, while Republicans largely called for taking a cautious approach to enacting new laws,” Politico observed.
“We don’t need knee-jerk reactions by lawmakers to regulate out of fear of the unknown rather than seeking to understand,” said Rep. Patrick McHenry of North Carolina, the top Republican on the financial services committee. “That fear of the unknown and the move to regulate before understanding will only stifle American ingenuity and put us at a competitive disadvantage.”
“I am tremendously impressed, said Texas Republican Representative Pete Sessions. “I see a lot of ingenuity, a lot of entrepreneurial spirit. We need to be supportive of you.”
Not to be left out of the conversation, the American Bankers Association offered its opinion that any firm offering “bank-like services” should be subject to bank-like regulation, and that the best way to manage crypto is through the traditional banking system.
“ABA believes that customers who choose to access digital asset markets will be best served when they can do so through fully regulated banks where they are afforded robust consumer protection,” the organization said in a written statement. “To accommodate this customer demand, banks are actively evaluating ways to safely and responsibly allow their customers to buy, hold, and sell digital assets through their existing banking relationships.”
Bank Policy Institute President and CEO Greg Baer, also voiced the banking world’s position on crypto in a statement:
“Today, the largest players in the digital assets space operate largely outside the existing U.S. regulatory framework, with resulting risk for consumers and financial stability,” he said. “Meanwhile, regulated banks continue to await clear rules from regulators about their authority to engage in digital asset-related activities, leaving the banking industry largely on the sidelines even though banks are best positioned to be the most responsible and trustworthy players in this market.
The traditional banking industry is largely focused on stablecoins at this point. The coins will have their day on Capitol Hill December 14 as the Senate Committee on Banking, Housing and Urban Affairs will hold a hearing on the coins. Will all this attention on crypto yield any new regulation for crypto? Or will the giants of the digital currency industry need to put their suits and ties on again for future hearings? Stay tuned.
Joyce Pavia Hanson