Executives of six cryptocurrency companies urged Congress on Wednesday to clarify regulations, relax restrictions, and bring about tailor-made legislation for the booming $3 trillion sector.
Washington is still figuring out how to manage the decade-old digital asset market in which almost 16 percent of Americans have made at least one transaction. A partisan divide was visible at the House Financial Services Committee hearing where executives explained the technically-advanced industry, and how tougher regulations might send cryptocurrency companies packing off to foreign destinations with more agreeable terms of conduct.
“We need clear standards and the government’s support to create a new, more secure, more competitive financial system,” said Charles Cascarilla, CEO of Paxos, a New York-based cryptocurrency brokerage platform. “The benefits of getting this right are enormous—but so are the consequences of getting it wrong.”
Democrats were worried about the inherent risks in cryptocurrency products that include extreme price volatility, alleged increasing usage of digital tokens in financial crimes, the alleged environmental effects of cryptocurrency mining, and their effect on the U.S. dollar.
The growth and mainstream acceptance of digital currencies has “contributed to working families looking for alternatives to rebuild their nest egg by investing in cryptocurrency,” said Rep. Maxine Waters (D-Calif.), the committee’s chairwoman. However, the industry has “no overarching or centralized regulatory framework, leaving investments in the digital-assets space vulnerable to fraud, manipulation, and abuse,” she said.
Republicans were more in line with the perspective of the executives. “Of course, we need reasonable rules of the road, but the knee-jerk reaction of lawmakers to regulate out of fear of the unknown will only stifle American ingenuity and put us at a competitive disadvantage,” said Rep. Patrick McHenry (R-N.C.), adding that the industry is already regulated.
Other than lighter regulations, cryptocurrency executives wanted a loosening of the SEC’s grip on the sector, claiming that blockchain tokens did not come under the banner of securities but were tokens indicating ownership. “It would benefit all of us in the ecosystem to have agreed-upon definitions,” said Coinbase Chief Financial Officer Alesia Haas.
Existing laws may not be applicable to the cryptocurrency space, claimed the executives. They said that bespoke regulations need to be written instead of forcing the industry to comply with archaic existing rules.
“Without tailored legislative solutions that are openly debated with public participation, the United States risks unnecessarily onerous and chilling laws and regulations,” warned Haas.
However, crafting new regulations may not happen anytime soon because of the rifts in acceptance among House members.
Lawmakers are concerned whether the rapid growth of cryptocurrencies and stablecoins—tokens pegged to traditional assets like the U.S. dollar—will contribute to escalating risks in the financial markets. The recent hearing was held as a first step toward understanding the complex sector.
“Most of the people that I know that have invested in cryptocurrencies [have done so] ... because they think they can get rich quick,” said Rep. Juan Vargas (D-Calif.). “We’ve seen this before, unfortunately, and it led to the financial crisis.”
Currently there are federal agencies regulating the activities of the industry besides authorities in individual states. As one of the major players in the space, Coinbase is leading a lobbying effort to revamp existing regulations and replace them with a new regulatory authority for cryptocurrency oversight.
“I’m in favor of what you do,” Rep. Pete Sessions (R-Texas) said. However, “I’m not sure I want to go as far as you do on [the] robustness of how much oversight you really want.”
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