On Wednesday, Congress hosted a much-anticipated hearing with six senior executives from leading crypto firms.
Interest in the hearing was large enough that the House Financial Services Committee’s stream was initially in the five digits for viewership. As the hearing extended to nearly five hours, viewership declined. Nonetheless, it was a significant, public moment for the crypto industry.
“This is the first cryptocurrency hearing this committee has had in 13 years [since the Bitcoin whitepaper],” the committee’s leading Republican, Patrick McHenry, told The Block. The most comparable event was the 2019 hearings for Libra, which at the time signified more of a condemnation of Facebook's plans.
As representatives of the industry, the witnesses were on some level running defense against more aggressive regulation. But as has been the case throughout Congress lately, the reception has warmed. As several committee members observed in their questions, the fact of holding such a full-committee educational hearing was indicative of a major shift in congressional interest in crypto.
The firms represented — Bitfury, Circle, Coinbase, FTX, Paxos and the Stellar Development Foundation — were not necessarily the largest by valuation but were among those most engaged with U.S. politics.
As The Block wrote yesterday, the central concerns were regulatory regimes for stablecoins and trading platforms. As Committee Chairwoman Maxine Waters commented, “Currently, cryptocurrency markets have no overarching centralized framework.”
The stablecoin piece was especially pressing — Congressman Warren Davidson called it “the lowest-hanging fruit” — as it seems the most similar to existing rules for banks. And indeed, frequent crypto critic Rep. Brad Sherman lamented that Tether, the largest stablecoin issuer, “didn’t even show up.”
Circle and Paxos, involved with two of the largest USD-backed stablecoins, did have representation present: Jeremy Allaire and Charles Cascarilla, both of whom have become familiar figures in congressional hearings. In one exchange, Congresswoman Nydia Velázquez asked the two of them to verify that all of their backings were in cash or Treasury bills before getting their support for federal standards. The two CEOs agreed.
Most prominent were the proposals to limit their issuance to insured depository institutions, or IDIs, in the recent President’s Working Group report on stablecoins. Broadly, the industry is not onboard.
“Is it consistent to take the position that only banks should be allowed to issue stablecoins, but then fail to grant bank charters to the largest issuers of stablecoins?” asked Brian Brooks, current CEO of Bitfury and a former Comptroller of the Currency.
The other big issue was an overarching regulator for trading platforms. Both Alesia Haas, Coinbase’s global CFO, and FTX’s Sam Bankman-Fried supported some form of harmonization. However, Haas maintained, under oath, that the Securities and Exchange Commission, or SEC, had provided no further explanation for its push to shut down Coinbase’s Lend product.
The argument for a consistent regulatory regime drew some sympathy across the committee, but the devil remains in the details. The SEC and its sister regulator, the Commodity Futures Trading Commission, are themselves arguing out their respective roles within the crypto ecosystem. There is more and more talk of expanding the CFTC’s regulatory purview into spot markets for cryptocurrency, where the commission currently only regulates futures trading.
Historically, congressional Democrats have been more interested than Republicans in more aggressive regulation of crypto. Rep. Alexandria Ocasio-Cortez posited that “this doesn’t seem like a new system so much as an expansion of our present one.” Rep. Sherman went further, saying: “The fact is that the advocates of crypto represent the powers in our society.”
In some ways, this dynamic continues, especially as it becomes more of a prerogative of the Biden administration’s executive appointments.
“No mistake that the Democrats who control the agenda here on the Hill are matched up with what we hear from the regulators run by Democrats,” Congressman McHenry told The Block. “The mentions of stablecoins and exchanges match with what we understand the regulators are going to move forward on. So in many respects, some of my Democrat friends are trying to provide cover for their other Democrat friends.”
Interestingly, several Democrats who entered the committee this year seemed more interested in crypto’s potential positive impacts. Rep. Ritchie Torres asked the witnesses how stablecoins could help the large immigrant population in his district in the South Bronx facilitate cheaper remittances.
Rep. Jake Auchincloss decried the current regime of regulation by enforcement and negotiation on a “one-off basis” with the SEC and CFTC. He seemed to echo FTX’s policy push for a designated primary single regulator, at least on a temporary basis.
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