The House Agriculture Committee and the House Financial Services Committee took a game-changing step by joining forces today to hold a joint session on the regulation of digital assets such as Bitcoin and other cryptocurrencies.
The session aimed to address the need for clear rules and sensible compliance measures in the rapidly evolving cryptocurrency space.
The session began with Mike Johnson, Chairman of the Legal Subcommittee, greeting the collaboration between the two committees as a historic moment. Johnson emphasized the importance of unity in order to make progress, saying:
"If we're going to make the progress we need, we're going to need to do it together. We want to bring certainty and logical fit into the digital asset space."
Commission President French Hill echoed Johnson's sentiments and expressed his concerns about offshore cryptocurrency exchanges. He highlighted the need for legislation in the United States that would ensure compliance, protect investors and consumers, and prevent future catastrophic events like the recent FTX discussion.
Some Members Want Existing Securities Laws to Exactly Apply to Cryptocurrencies
Congressman Stephen F. Lynch expressed doubts about the need for a separate regulatory regime for cryptocurrencies, suggesting that this could lead to redundancy and unnecessary complications. Former CFTC Chairman Tim Massad shared Lynch's concerns and warned against rewriting existing securities laws, citing potential litigation, confusion and unwanted loopholes as possible consequences.
The importance of applying the Howey Test to determine whether a digital asset is a security or a commodity was also discussed during the hearing. Mike Johnson, the Republican Deputy Speaker of the House of Representatives, asked the differences between digital commodities and traditional commodities.
Former CFTC Director Matt Kulkin highlighted the individual component and innovation of digital commodities, emphasizing that they lack the extensive regulatory history of traditional commodities.
Kraken Chief Legal Officer Marco Santori criticized the current public disclosure system, arguing that it does not adequately address the unique characteristics of digital assets.
When the discussion turned to regulatory oversight, Tim Massad suggested establishing a joint autoregulatory agency (SRO) that would develop rules approved by both the SEC and the CFTC. He suggested that the crypto industry could achieve its independence by funding this SRO.
Senior Member David Scott Questioned Real-Life Use of Crypto Assets
Senior Member Representative David Scott voiced his doubts about cryptocurrencies, questioning their real-world utility. He asked if Americans regularly use crypto to pay for goods and services, and he claimed the answer was a big "no".
Representative Warren Davidson touched on the role of decentralization in determining whether a digital asset should be considered a security. He emphasized the importance of considering the functionality of a token rather than relying solely on its definition.
Various views have been shared regarding the regulation of the crypto space, including concerns about giving full control to a single individual and the need for extensive federal planning.
The session also touched upon the international situation of cryptocurrencies. Kraken official Marco Santori emphasized that due to the lack of standards and comprehensive federal plans in the United States, there are plans to invest in Europe and the United Kingdom.
Michael Blaugrund of the New York Stock Exchange urged the SEC to adopt an approach that would allow existing tokens to enter the regulatory framework, thereby breaking the cycle of uncertainty.
Senior Member Representative Maxine Waters raised the question of whether a new regulatory framework is necessary for crypto exchanges. Michael Blaugrund responded by warning that a lighter approach could increase the risk of regulatory arbitrage and undermine investor confidence. He suggested that current regulatory authorities have the necessary powers to adapt to the digital asset landscape.
During a heated debate, Representative Sean Casten contested Andrew Durgee's claim that cryptocurrencies could fix wealth inequality, citing statistics that point to a significant loss in investment in cryptocurrencies compared to traditional investments in the S&P 500.
The Session Discussed Ethereum as a Security
The question of whether Ethereum (ETH) should be classified as a security or a commodity was also raised during the hearing. Former CFTC Director Matt Kulkin expressed the view that Ethereum should be considered a commodity. Noting the existence of futures contracts traded on the Ethereum network, he noted similarities with other traditional commodities such as soybeans and energy products.
Former CFTC Chairman Tim Massad added a slightly different dimension to the discussion by stating that a token can exhibit the characteristics of both a security and a commodity. He highlighted the complexity of classification, highlighting the need for a transition in securities laws when a business no longer affects the value of a digital asset.
Representative Brad Sherman, known for his critical stance on cryptocurrencies, has raised important questions about whether cryptocurrencies should be allowed to continue operating in the United States. He described crypto as "hidden money", suggesting it has the potential to evade sanctions laws and facilitate tax evasion.
What are the Results Drawn from the Session?
In his closing speech, Patrick McHenry summarized several key conclusions drawn from the session. It highlighted the inadequacy of the current public disclosure framework for digital assets and called for the CFTC to have additional jurisdiction over digital assets that are not securities.
McHenry also underlined that the SEC needs to change its rules on brokerage houses and stock exchanges. Finally, he urged Congress to take action, emphasizing that the SEC and CFTC could not overcome these challenges alone.
*Not investment advice.
