The House Financial Services Subcommittee on Capital Markets, Securities, and Investments held a hearing on March 14th “to examine the cryptocurrencies and Initial Coin Offering (ICO) markets.” While takeaways range from an “overall measured tone” to “bitcoin bash fest,” it was an opportunity for direct dialogue and cooperation between industry experts and lawmakers.
Representative Brad Sherman (D-CA) presented the clearest, yet most negative, stance on cryptocurrencies and ICOs, as well as the people who participate in the space:
“Cryptocurrencies are popular with guys who like to sit in their pajamas and tell their wives they are going to be millionaires. They help terrorists and criminals move money around the world. Tax evaders. They help startup companies commit fraud, take money, and one percent of the time they actually create a useful business.”
Based on a similar, yet more measured, concern for the users of cryptocurrencies, Representative Carolyn Maloney (D-NY) fears “they’re pouring their life savings into virtual currencies and they stand to lose a lot of money when this bubble eventually bursts.” Rep. Maloney is currently working on legislation she believes “would regulate virtual currencies but not the technology” with an emphasis on investor protections such as disclosures regulated by the SEC.
The Chairman of the subcommittee, Representative Bill Huizenga (R-MI), stated that while this emerging technology “has moved very quickly…this panel, this Congress is not going to sit idly with a lack of protection for investors.” Huizenga referenced a soon to be published MIT study of the ICO space which estimates that between $270 – $317 million raised has “likely gone to fraud or scams.”
Taking a more laissez-faire approach, Representative Tom Emmer (R-MN), who is a member of the Congressional Blockchain Caucus, concedes that “there has to be some regulation, but there needs to be balance.” He also questions the reaction and approach to this technology among members of Congress, believing:
“Democrats and Republicans should be celebrating here in Congress not going ‘oh my gosh, this is terrible, we don’t understand it’…yet I hear elected officials who don’t have any concept of what we’re doing here…talking about ‘we have to go in and regulate.’”
Rep. Emmer urged against the creation of “new policemen” to regulate this emerging technology and to not “take the policeman we already have and give them more powers to start to invade this space and perhaps frustrate development.” He finds an ally in Representative Randy Hultgren (R-IL) who, too, believes in a cautious and finely balanced approach to regulation where “Congress has a responsibility to ensure that investors are protected without unduly preventing growth.” Additionally, Representative Ted Budd (R-NC) argued that oversight in this emerging space is something that Congress “has to get right.”
One of the witnesses called to testify, Dr. Chris Brummer, a professor of law at Georgetown University, posited that much of the contention from government in this space comes “because digital things tend to be more abstract and they therefore tend to be harder to understand,” contrary to defining things such as gold which is “shiny and universally identified as something that has value” as a commodity. Chairman Huizenga seemed to acknowledge as much stating “governmental bureaucracies tend not to view the world through those lenses. And I think there is a certain governmental responsibility to protect investors.”
Robert Rosenblum, a Partner at the Law Firm Wilson Sonsini Goodrich & Rosati, testified that “regulation by enforcement, in an area that is as complicated and dynamic as this, is not the appropriate way to regulate. Enforcement is clearly necessary; however, we need clearer guidelines on the SEC’s registration, market trading and how investment rules should apply and do apply.”
Chief Legal and Risk Officer at Coinbase, Mike Lempres, echoed these concerns of “regulation by enforcement without enough clear guidance on what is permissible” which is “harming innovation.” Rather than a call for “Congress to create a new regulator or a new regulatory scheme,” Lempres argues for “clear and consistent guidance” as “it is not clear where one regulator’s authority ends and transitions to another” and warns that if “the U.S. does not provide a clear, thoughtful regulatory environment…capital in this space can move around the world without friction” and “can move very quickly to other countries.”
This hearing is one of many to be expected; as subcommittee Chairman Rep. Huizenga put it: “I believe that this is probably hello and not goodbye”
Click here to watch this hearing in full.