Congressional crypto hearing reflects political impasse over digital assets



On May 10, the United States House of Representatives Financial Services Committee and the Agriculture Committee held their first joint hearing on digital asset regulation. The incident felt like a logical continuation of another recent hearing, where representatives lambasted Securities Exchange Commission Chairman Gary Gensler for alleged regulatory overreach.

The main narrative expressed by the initiators of the hearings was that Congress should intervene in their regulatory project to provide certainty, prevent “regulation through enforcement”, and address competition among regulatory agencies. But maybe it really shouldn’t be, many lawyers also believe.

hill and lynch

Despite the intercommittee nature of the hearing, titled “The Future of Digital Assets: Bridging Regulatory Gaps in the Digital Asset Market,” members of the Financial Services Committee set the tone for the event.

In his opening remarks, Representative French Hill, a Republican from Arkansas, summarized the current struggle over digital assets: While some lawmakers (mainly Republicans) believe there is no workable framework for crypto in the country, No. Others (primarily Democrats) are certain that existing regulation is sufficient to ensure compliance. Hill dismissed the partisan nature of the conflict, saying:

“No one here is claiming that crypto should be free from regulations or that we should create an entirely new regime for it. Instead, we seek to amend existing legislation to apply the principle of ‘same risk, same regulation’. are trying.”

In a seemingly surprising move, Representative Stephen Lynch, a Democrat from Massachusetts, took the exact opposite position of Hill’s speech. Lynch urged not to fall into the false “industry-fueled narrative” about a war between the Commodity Futures Trading Commission (CFTC) and the SEC.

In their opinion, industry advocates continue to make claims about current legislation that is not conducive to the innovation economy because they know crypto business models are incompatible with orderly markets or investor protection legislation. Therefore, creating a new carve for digital assets seems unnecessary and redundant. Per Lynch, lawmakers should take a step back and investigate intermediaries, who he claimed have generally failed to comply, and seek to combine multiple financial functions despite existing prohibitions.

testimony

If one separates the current position among congressmen as “pro-reform” or “anti-reform”, most of the witnesses at the hearings were of the former.

Andrew Durge, head of Web3 investment platform Republic Crypto, echoed some delegates, highlighting a perceived incompatibility between existing regulations and the decentralized and decentralized trading technology of blockchain.

He claimed that digital assets registered as securities cannot be traded on existing crypto exchanges, none of which are registered as national securities exchanges. Dargi advocated for the change, proposing the inclusion of several legal definitions in any future amendments, such as autonomous smart contracts, smart contract employers, liquidity providers, and front-end website operators.

Matthew Culkin, former director of the CFTC Division of Swap Dealers and Intermediaries Oversight, told the committee that the largest digital assets by market size and trading volume are commodities and therefore should be regulated by the CFTC. This can be achieved if Congress recognizes the inherent difference between digital assets that are securities and those that are commodities.

Kraken Chief Legal Officer Marco Santori explained how the current gap in regulation can be filled by Congress, adding that the House of Representatives should establish a functional framework, define the jurisdiction of the SEC and spot digital asset. The CFTC’s authority to regulate markets and exchanges should be expanded. His counterpart, Daniel Schoenberger of the Web3 Foundation, largely agreed, cautioning against attempts to impose laws and regulations that were clearly not designed for the digital asset space for blockchain technology.

Timothy Massad, a research fellow at the Harvard Kennedy School, offers an alternative to the proposed approach of subduing the SEC and potentially expanding the CFTC’s powers.

In Massad’s opinion, many investor protection principles are the same regardless of whether a token is a security or a commodity. Starting from that point, any trading or lending platform that “trades bitcoin or ethereum” must adhere to a set of core principles for all tokens traded or used on that platform, Even if it is not registered with the SEC or CFTC as securities or derivatives. Mediator.

political impasse?

As many of the congressional hearings have focused on digital assets, this has certainly been welcomed by the industry. However, the final conclusion was that some legislators clearly want to pass the next big piece of legislation through Congress and move away from the SEC’s proactive stance — perhaps by strengthening the CFTC — and the question is whether this intent is a And after listening comes closer to reality.

One should note that there is, in fact, no shortage of legislative projects currently waiting to hear from Congress – the Lummis-Gillibrand “Crypto Bill”, to name one. But the Democrats’ steadfast stand in favor of the SEC makes it hard to envision any drastic changes, as XYO Network co-founder Marcus Levin told Cointelegraph:

“Perhaps members of the House who are pro-innovation in the digital asset space could serve as a bulwark against executive overreach. But when surveying the ultrapartisan and divided House, it seems highly unlikely that anything concrete will happen at this time.” Will happen.

Howard Fisher, Moses Singer’s partner and former senior trial counsel for the SEC, does not believe in any constructive results for the industry from the hearings, with one small exception.

“Apart from possibly stable coins,” he told Cointelegraph, “the likelihood of substantial agreement on the scope of that regulatory structure (with respect to who oversees this market) is low, given how this regulation is particularly important.” Will. Work.”

A four-page resolution of support for blockchain technology and digital assets launched as part of the hearing criticizes the SEC’s disclosure process for digital assets and states that neither the SEC nor the CFTC has a non- -Security, digital asset has authority over intermediaries in the spot market. ,

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However, the resolution itself has no force and was sponsored only by Republican Representative Mike Johnson. “It was really a congressional reprimand from 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 worry about the resolution.

According to Fischer, what we are seeing is a political impasse, and it is not going to break anytime soon. Efforts to explicitly strip the SEC of regulatory and enforcement authority are unlikely to succeed, whether they aim to bestow that authority on the CFTC or a new self-regulatory organization. And the financial climate of the crypto industry will not help these efforts, Fischer suggests:

“Many will see this as a backdoor to give digital asset companies freedom from regulation. While this may have been politically possible at the beginning of last year, since the crypto cycle has collapsed, it is less likely.