On May 10, the Committee on Financial Services and the Committee on Agriculture of the United States House of Representatives held their first joint hearing on the regulation of digital assets. The act seemed the logical continuation of another recent hearing in which representatives lashed out at Securities and Exchange Commission Chairman Gary Gensler for his regulatory overreach.
The main argument, articulated by the initiators of the hearing, was that Congress should step in with its own regulatory bill to provide security, end “enforcement regulation” and address competition between regulatory agencies. But maybe it really shouldn’t, many lawyers also believe.
hill and lynch
Despite the intercommittee nature of the hearing, called “The Future of Digital Assets: Measuring Regulatory Gaps in Digital Asset Markets”, members of the Financial Services Committee set the tone for the event.
In his keynote address, Rep. French Hill, Republican of Arkansas, summed up the ongoing conflict surrounding digital assets: While some legislators (mainly Republicans) believe there is no viable framework for cryptocurrency in the country, others (mainly Republicans) Democrats) are confident that existing regulation is sufficient to ensure compliance. Hill was quick to debunk the partisan nature of the conflict, stating:
“Nobody here is saying that cryptocurrencies should be exempt from rules or that we should create a whole new regime for them. Instead, we are trying to apply the principle of “same risk, same regulation” to modify the current law.”
In an unsurprising move, Rep. Stephen Lynch, D-Massachusetts, took the exact opposite stance after Hill’s speech. Lynch urged not to fall for the false “industry-fed narrative” about a turf war between the Commodity Futures Trading Commission (CFTC) and the SEC.
In your opinion, industry advocates continue to claim that current legislation does not fit the innovation economy because they know that cryptocurrency business models are incompatible with orderly markets or investor protection law. Therefore, creating a new exception for digital assets seems unnecessary and redundant. According to Lynch, lawmakers should step back and scrutinize intermediaries, which he says are generally non-compliant, and try to combine multiple financial functions despite the existing ban.
Testimonials
If it were necessary to distinguish the existing positions among the congressmen as “pro-reform” or “anti-reform”, most of the witnesses in the hearing belonged to the former.
Andrew Durgee, head of investment platform Web3 Republic Crypto, echoed some of the representatives, highlighting the perceived incompatibility between current regulations and the disintermediated, decentralized trading technology of blockchain.
He stated that digital assets registered as securities cannot be traded on existing cryptocurrency exchanges, none of which are registered as national stock exchanges.. Durgee advocated for the change, proposing to include a number of legal definitions in any future amendments, such as standalone smart contract, smart contract deployers, liquidity providers, and front-end website operators.
Matthew Kulkin, former director of the CFTC’s Division of Supervision of Dealers and Swaps Dealers, told the commission that most of the largest digital assets by market size and trading volume are commodities and as such should be regulated. by the CFTC. That could be achieved if Congress recognizes the inherent differences between digital assets that are securities and those that are commodities.
Kraken’s chief legal officer, Marco Santori, outlined how Congress could fill current regulatory loopholes, stating that The House of Representatives should establish a functional framework, define the jurisdiction of the SEC, and expand the CFTC’s authority to regulate digital asset spot markets and exchanges. His Web3 Foundation counterpart, Daniel Schoenberger, largely concurred, warning against attempts to apply laws and regulations not explicitly designed for blockchain technology to the digital asset space.
Timothy Massad, a fellow at the Harvard Kennedy School, offered an alternative to the proposed approach of shrinking the SEC and potentially expanding the CFTC’s powers.
In Massad’s opinion, many of the investor protection principles are the same regardless of whether a token is a security or a commodity. From there, any trading or lending platform that “trades Bitcoin or Ethereum” must adhere to a set of basic principles for all tokens traded or used on that platform, even if it is not registered with the SEC or CFTC as a securities intermediary. or derivatives.
Political deadlock?
Like many congressional hearings focused on digital assets, this one was certainly well received by the industry. The bottom line, however, was that some lawmakers clearly want to pass the next big piece of legislation through Congress and kill off the SEC’s proactive stance—perhaps by strengthening the CFTC—and the question is whether this intention is any closer to reality after another. audience.
Note that there is, in fact, no shortage of bills waiting to be heard by Congress: the Lummis-Gillibrand “cryptocurrency bill,” to name one. But the strong stance of the Democrats on the side of the SEC makes it difficult to imagine drastic changes, as Markus Levin, co-founder of XYO Network, told Cointelegraph:
“Perhaps House members who are in favor of innovation in the digital asset space could serve as a bulwark against executive overreach. But looking at the ultra-partisan, divided House, it doesn’t seem terribly likely that anything tangible will happen right now.”
Howard Fischer, a partner at Moses Singer and a former SEC trial attorney, also doesn’t think the hearings will have creative results for the industry, with one small exception.
“Other than possibly with stablecoins,” he told Cointelegraph, “The chances that there will be sufficient agreement on the scope of that regulatory structure (including with respect to who oversees this market) are low, given the significant divisions regarding how specifically that regulation would work.”
A four-page resolution supporting blockchain technology and digital assets filed as part of the hearing criticizes the SEC’s disclosure procedure for digital assets, asserting that neither the SEC nor the CFTC have authority over intermediaries in the marketplace. spot digital assets that are not securities.
However, the resolution is powerless by itself and was sponsored solely by Republican Rep. Mike Johnson. “This was really a congressman’s rebuke to the SEC”Richard Hong, a former SEC trial attorney and now a partner at Morrison Cohen, told Cointelegraph. Given SEC Chairman Gensler’s support within the Democratic Party, he would hardly be concerned about the resolution.
What we are witnessing is a political stalemate, and it is not going to be broken anytime soon, according to Fischer. Efforts to explicitly strip the SEC of regulatory and enforcement authority, whether aimed at vesting that authority in the CFTC or a new self-regulatory organization, are unlikely to succeed. And the financial climate of the crypto industry will not help these efforts, Fischer suggests:
“That would be seen by many as a clandestine way to free digital asset companies from regulation. While that might have been politically feasible early last year, the cycle of crypto crashes since makes that unlikely.”
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