Executives of major cryptocurrency firms stepped into the glare of congressional scrutiny for the first time on Wednesday, telling lawmakers the burgeoning industry needs federal oversight but resisting some of the hardline policies that regulators have advocated.
One flashpoint was whether digital tokens are securities that should be policed by the Securities and Exchange Commission. Testifying before the House Financial Services Committee, Coinbase Global Inc. Chief Financial Officer Alesia Haas said she disagrees with such an approach, arguing that decades-old rules designed for assets such as stocks aren’t appropriate for digital tokens.
The nearly five-hour-long hearing could help further legitimize crypto, though it also revealed the difficulties federal officials face in regulating the industry. Leaders of Coinbase, Circle Internet Financial Inc., the FTX derivatives exchange and other firms endured a battery of questions on how their businesses should be overseen, and the executives answered without getting into controversial arguments. Still, the clear partisan divisions that emerged between lawmakers showed that the prospects for passing legislation to regulate crypto are dim.
The appearance did allow the executives to tout the new technologies and could be a milestone for the young and rapidly growing industry. The stakes are high: As lawmakers and regulators struggle over how to monitor tokens, tens of millions of Americans have rushed to invest in them, making a roughly $2.4 trillion market.
The testimony also highlighted the steep learning curve that many officials in Washington have. Democrats raised concerns about fraud and other abuses while Republicans cautioned against too much regulation slowing down innovation.
Vulnerable to Fraud
“Americans are increasingly making financial decisions using digital assets every day,” House Financial Services Committee Chairwoman Maxine Waters said, cautioning that the industry’s rapid growth without federal oversight makes it “vulnerable to fraud, manipulation and abuse.”
Meanwhile, the panel’s ranking Republican, Patrick McHenry, argued that “we don’t need knee-jerk reactions from lawmakers” who don’t understand tokens. He said Congress should embrace digital currency technologies to ensure the growth of crypto happens in the U.S.
Lawmakers invited some of the most prominent names in digital currency, including the chief executives of Bitfury Group Ltd., Paxos Trust Co. and Stellar Development Foundation.
While the executives were mostly uniform in agreeing that federal oversight is needed to help bolster digital technologies, their ideas of exactly what that would look like differed from what some of the Biden administration’s top regulators have proposed.
SEC Chair Gary Gensler has said that the law deems most coins are securities – thus falling under the jurisdiction of his agency.
Coinbase’s Haas, however, testified that “blockchain tokens are not securities.” She argued that they are instead “either a new form of digital property or a new way to record ownership.”
The CEOs frequently spoke about the technology underpinning crypto, billing it as a component of a new version of the Internet that would be controlled by the people rather than massive corporations like Alphabet Inc.’s Google and Meta Platform Inc.’s Facebook. They also sought to distance themselves from controversial issues, such as tokens’ wild price swings or use in criminal activities.
Open System
The executives stressed that tokens can help people who don’t have access to banks –- a key concern of Waters and other Democrats on the panel.
“This is an open financial system,” said Circle’s Jeremy Allaire, noting crypto “creates an opportunity for anyone with a mobile device anywhere in the world to seamlessly exchange value with one another.”
Democrats on the committee, however, asked questions about who is protecting average investors speculating on tokens. Some said they were seeing issues that echoed the run-up to the 2008 financial crisis.
“There is still extreme volatility, it seems, in this marketplace,” said Representative Al Green of Texas. “At what point should we be concerned about the possibility of a bubble?”
The hearing also had some head-scratching moments. Roger Williams, a Texas Republican and former minor league baseball player, compared the executives to the legendary Babe Ruth, whose home run power helped modernize and popularize the game. Too much regulation, he noted, could be harmful.
“All of you were working tirelessly to create something new in order to bring this new technology to the masses,” Williams said. “Unfortunately it would only take a few misguided curveballs, we’ll say, from Washington to undo some of this progress.”
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