Executives from six of the most prominent cryptocurrency companies visited Congress last week, asking for clearer rules while warning lawmakers against imposing strict regulations. Crypto executives have long called for lawmakers to create "tailored" legislation for crypto rather than forcing the companies to comply with current regulations.
"Without tailored legislative solutions that are openly debated with public participation, the United States risks unnecessarily onerous and chilling laws and regulations," CEO of Coinbase Inc.
Currently, the U.S. is just one of countless nations navigating the crypto-issue. While some countries like China have either completely banned or heavily restricted the use of digital assets and crypto, El Salvador and countries like it have allowed the industry, worth $3 trillion globally, to develop unhindered.
Executives told Congress that over-regulating the market in the United States would just push traders overseas.
"A surprising number of talented traders have left for Portugal, Dubai, Abu Dhabi, Singapore and other jurisdictions that are not at all unregulated but have growth," Brian Brooks, head of BitFury and former U.S. CEO of Binance, said at the hearing.
Coinbase, Circle, FTX Trading, Paxos, Stellar Development Foundation, and BitFury all sent representatives to testify before the U.S. House of Representatives Financial Services Committee. The relatively low-key hearing was the first the Committee has held regarding the regulation and potential systemic risks of cryptocurrencies and didn't feature any explosive viral moments.
This initial meeting was seen more as a fact-finding mission rather than an opportunity to formulate potential new regulations. In fact, analysts believe new rules for crypto won't be on the books anytime soon.
Lawmakers like Committee Chair Rep. Maxine Waters, D, argue that there are still far too many questions left to be answered, specifically citing the necessary oversight of stablecoins.
"Currently, cryptocurrency markets have no overarching or centralized regulatory framework, leaving investments in the digital assets space vulnerable to fraud manipulation and abuse," Waters said.
Stablecoins are cryptocurrencies that peg their prices to some external reference, like another cryptocurrency, traditional currency, or traded commodity. Last month, a working group with the U.S. Treasury recommended that Congress restrict the use of stablecoins to companies that have insured deposits, similar to how banks are regulated.
The group also stated that stablecoins could represent a systemic risk to the U.S. economy, with a lack of regulation on user redemption rights, disclosures, and what assets can be used to back the coins. The report argued that a drop in confidence amongst users could lead to runs, meaning spiraling decreases in price.
"Runs could spread contagiously from one stablecoin to another, or to other types of financial institutions that are believed to have a similar risk profile. Risks to the broader financial system could rapidly increase as well, especially in the absence of prudential standards," the report reads.
Other Democrats, like Sen. Elizabeth Warren and Rep. Juan Vargas, warned that these products can easily be used for illicit purposes, sometimes in order to dupe unsuspecting citizens.
"Most of the people that I know that have invested in cryptocurrencies (do so)...because they think they can get rich quick," Vargas said. "We've seen this before, unfortunately, and it led to the financial crisis."
Many Republican lawmakers, on the other hand, took the time to praise the crypto executives for their investment in this emerging technology.
"I am tremendously impressed. I see a lot of ingenuity, a lot of entrepreneurial spirit," Rep. Pete Sessions, D-TX, told the executives. "We need to be supportive of you."
The crypto executives testified that the lawmakers' support should come in the form of clear rules for the rapidly growing sector, allowing investors to continue to purchase digital assets without stifling the market. They stated that they would welcome specialized regulation, so long as it doesn't go too far.
"We don't need knee-jerk reactions by lawmakers to regulate out of fear of the unknown rather than seeking to understand," Rep. Patrick T. McHenry, R, said at the hearing. "That fear of the unknown and the move to regulate before understanding will only stifle American ingenuity and put us at a competitive disadvantage."
