Over the past few weeks, Congress — specifically the House Financial Services Committee — has held a number of hearings on crypto and its role in the world. Even a hearing rumored to be focused on oversight of the US Securities and Exchange Commission saw mostly crypto and climate issues instead. Tomorrow there will be another hearing with the House Agriculture Committee specifically on cryptocurrency regulation.
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“Regulatory clarity,” as the crypto industry defines it, can come in one of two ways: either a federal regulator provides formal guidance and regulations that address one concern or another, or Congress passes legislation defining those concerns. Regulators such as the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) have issued some proposed rules (which in some cases have prompted industry backlash), but in general hopes have focused on Congress potentially take action. There will be another hearing this week to look at the crypto market.
Congress continues to explore the idea of crypto regulation. What new guidance would look like in practice is yet to be seen, but lawmakers will return to the issue on Wednesday.
We don’t know for sure if any actual legislation will be passed this year. The industry expected that a stablecoin law would have the best chance of success when it came to passing legislation. Those expectations were pretty much dashed during a hearing on stablecoins earlier this month when Congresswoman Maxine Waters (D-Calif.), the senior member of the House Financial Services Committee, said the bill reflects the thinking of last October — and that in her In my view, the committee had to “start from scratch”.
Granted, it never looked like the Senate Banking Committee would publicly intervene anywhere near the bill, but the fact that the House had a bipartisan product suggested there was a chance. That’s dead now.
Still, lawmakers appear optimistic about the chances of a bill being passed next year.
Last week at Consensus 2023, I asked Congressman Patrick McHenry (RN.C.), who chairs the Financial Services Committee, if he thinks there’s a way to get legislation passed this year.
Sen. Cynthia Lummis (R-Wyo.), the other congressman with me on stage, seemed equally optimistic.
From the perspective of the House of Representatives, the next step toward legislation is still Wednesday’s hearing, which begins at 9:30 a.m. ET and will be attended by former Commodity Futures Trading Commission Chairman and current Harvard Research Fellow Timothy Massad, Republic crypto head Andrew Durgee, Wilmer Cutler Pickering Hale and attending Dorr partner Matthew Kulkin, Kraken Chief Legal Officer Marco Santori and Web3 Foundation Chief Legal Officer Daniel Schoenberger.
In his written testimony, Massad said one issue is the lack of a federal regulator of the cash market for non-securities cryptocurrencies and debate over how to even classify whether a given crypto is a security or not.
“SEC Chairman Gary Gensler says that most tokens are securities and the problem is a lack of compliance with existing regulatory requirements. Industry participants are complaining about a lack of clarity in the rules to address this issue and have urged regulators to create a new rulebook specifically for crypto,” he said. “Meanwhile, trading and lending platforms claim they only trade non-securities tokens – bypassing direct federal oversight. As a result, investor protection on crypto trading and lending platforms is woefully inadequate.”
Massad proposed that Congress pass legislation that would create certain principles and standards that every exchange would have to adhere to, regardless of whether the token listed is a security or a commodity.
He argued that this would negate the need to broaden the definition of securities laws or create a new category system for digital assets while still encompassing the entire crypto market.
The hearing also includes a joint proposed resolution requiring Congress to provide further guidance to the US Securities and Exchange Commission and the Commodity Futures Trading Commission on how to bring existing regulatory protections into the crypto sector.
If you have any thoughts or questions on what I should cover next week, or any other feedback you’d like to share, feel free to email me at [email protected] or find me on Twitter @nikhileshde.
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