Last week, a subcommittee of the House Committee on Financial Services convened for a lively hearing on the hot topic of cryptocurrencies. Here’s what we learned:
Congress Could Use a Crypto-Literacy Course: Remember that time back in 2006 when a United States Senator described the internet as a “series of tubes”? And you got a feeling in the pit of your stomach that it portended bad things for federal policymaking? Well, you may have experienced some deja vu when Rep. Brad Sherman (D-Cal) opened his remarks with the claim that “cryptocurrencies are a crock.” Nobody is here to defend bogus ICOs–such as Prodeum, a database of fruits and vegetables that was, apparently, named after a urinary tract infection – but there’s a lack of nuance in the representative’s remarks that some found troubling. In fact, one congressmen laid it right out there, saying that some of his Congressional colleagues “don’t have any concept of what we’re dealing with” when it comes to cryptocurrencies.
There’s a New “Crypto Daddy” in Washington: That sharp-tongued representative was Tom Emmer (R-MN), whose bona fides on cryptocurrency include being a member of the Congressional Blockchain Caucus. For his advocacy of a hands-off approach – at least until Congress understands the subject better – Rep. Emmer won the hearts of crypto advocates, at least one of whom suggested bestowing on him the title of “crypto daddy.” That honorific had previously been reserved for CFTC chair Christopher Giancarlo, another crypto-friendly power broker in DC. (We made note of Giancarlo’s crypto enthusiasm when we went through this on the Senate side.)
Congressional Action Feels Like Fait Accompli: As I told Markets Media last week, it really feels as though Congress is going to move on cryptocurrencies in some form or fashion this term or next. But don’t take it from me. Multiple representatives suggested that legislation is imminent. Rep. Carolyn Maloney (D-NY), for instance, talked up a bill she is drafting that “would regulate virtual currencies” but not the underlying technology; it would feature “robust” investor protections, including mandated disclosures to the SEC. Meanwhile, Bill Huizenga (R-MI), chair of the subcommittee on capital markets, securities, and investment, declared portentously: “This panel, this Congress, is not going to sit by idly with a lack of protection for investors.” He also said that for Congress, the cryptocurrency hearing was a matter of “hello and not goodbye.”
ICOs are Driving this Conversation: The hearing’s wide-ranging conversation included frightened talk about the potential for cryptocurrencies to ease the work of terrorists, white nationalists, and other unsavory characters. But for the moment, the real boogeyman here is scam ICOs, which according to an MIT professor have already fleeced investors of some $300 million. Granted, when Rep. Sherman complained that cryptocurrencies “allow a few dozen men in my district to sit in their pajamas all day and tell their wives they are going to be millionaires,” it was unclear whether he was out to protect them or berate them. Regardless, a considerable focus of the hearing was the potential for outright theft of “Main Street” investors, and nothing raises that threat in the cryptocurrency world quite like sketchy ICOs.
An Industry Response Is Coming Into Focus
As cryptocurrency players come under increased scrutiny, we can expect their messaging to coalesce around a few talking points. That process may have started in earnest at the House hearing. There, Mike Lempres, the chief legal and risk officer at Coinbase, stated a coherent argument against new regulation, suggesting that regulation and its enforcement should be a matter of quality, not quantity. “We believe that there is no need for Congress to create a new regulator or a new regulatory scheme because Federal regulators are of sufficient authority to oversee this space effectively,” he said. “There are at least four Federal regulatory agencies that can effectively protect investors and the markets. The SEC, CFTC, FinCEN, and the FTC. Also, this Federal regulatory regime exists aside vibrant state regulations.”