Hearings on regulatory gaps in crypto do not fill them

Congress has rebranded cryptocurrency as “digital assets,” but still can’t chart a clear future.

As evidenced by two hearings held together on Thursday (April 27) by the Subcommittee on Digital Assets, Financial Technology and Inclusion and the Subcommittee on Commodity Markets, Digital Assets and Rural Development, Congress’ intent on a viable market structure supported by clear rules is on the way.

How to get there remains up for debate.

Meanwhile, private sector financial services leaders including Visa and JP Morgan ( JPM ) among others are taking steps to launch their own digital asset roadmaps.

Visa’s roadmap, as reported by PYMNTS, includes stablecoin payments — while JPM is looking to “tokenize traditional finance.”

“We have a unique opportunity as members of this subcommittee to be at the forefront of creating a functional framework for the digital asset ecosystem,” said Digital Assets and Financial Technology Subcommittee Chairman Rep. French Hill, R-Ark. to kick off Thursday’s hour-long hearing titled “The Future of Digital Assets: Identifying the Regulatory Gaps in Digital Asset Market Structure.”

“For now, the SEC [Securities and Exchange Commission] and the CFTC [Commodities Futures Trading Commission] disagree on the classification of many digital assets, which is useless to entrepreneurs and consumers. The agencies need guidance from Congress,” the subcommittee chairman added, saying lawmakers needed to “take a deep dive into the regulatory environment … and lead in the right way.”

read more: SEC Chairman Gensler Defends Crypto Crash in Controversial House Hearings

Are two committees better than one?

In a joint statement released ahead of the two hearings, House Financial Services Committee Chairman Patrick McHenry, RN.C., House Agriculture Committee Chairman Glenn “GT” Thompson, R-Pa., and the two leaders of the respective subcommittees on Digital Assets, Hill and Dusty Johnson, RS.D., said of their combined efforts: “We are committed to finding workable solutions that provide much-needed regulatory clarity and certainty while adhering to proven principles that protect the market players.

“It is clear that digital assets, and their underlying blockchain technology, hold real promise,” the lawmakers stressed. “The transformational nature of this technology also creates regulatory challenges that affect both the House Agriculture and Financial Services Committees.

“Two committees working hand-in-hand on a joint legislative product like this is unprecedented, and I think it increases our chances of getting it right,” Hill said.

“Developers, users and institutions of digital assets need clear, well-thought-out rules of the road,” Thompson added.

In an interview with PYMNTS CEO Karen Webster last October, before Republicans gained control of the House, McHenry said digital asset legislation, particularly around stablecoins, was definitely “on the agenda.”

“Much ink has been spilled on digital assets, their value, their purpose and their ultimate benefit to society,” Johnson said. “The difficult task we are starting today is to create a piece of legislation.”

The two congressional committees will hold a joint subcommittee hearing next month to draft legislation intended to provide regulatory clarity and certainty while adhering to proven principles that protect market participants.

The European Union (EU) has already adopted a landmark regulatory framework designed specifically to help legally integrate cryptocurrency into its marketplace.

“Absent legislation, our regulators are only pushing entrepreneurs, developers and job creators offshore,” Hill said.

What is a digital asset, anyway?

“I think all of our assets are already digital,” witness Hilary Allen, an American University professor who teaches banking and securities law, told the assembled lawmakers.

“Many of these assets have dual purposes and are difficult to classify, as they contain both speculative and utility aspects,” said witness Zach Zweihorn, a partner at the Washington, DC, law firm Davis Polk & Wardwell who specializes in securities regulation. , adding that classification would probably need to include a utility limit.

A third witness, Daniel Gorfine, who once served as chief innovation officer for the CFTC, added: “The problem with the concept of digital assets is that it’s incredibly broad.”

“We have to be careful because regulations look at what an asset is, because there are things that can fall outside both commodity and security [definitions]”, Gorfine said.

Not so, according to SEC Chairman Gary Gensler.

“Nothing about the crypto markets is inconsistent with the securities laws. … The vast majority of crypto tokens are securities. It’s the law; it’s not a choice,” he said in a House hearing earlier this month. “Calling yourself a DeFi platform, for example , is not an excuse for flouting securities laws.”

As for what’s next, and what hope is there for an effective go-ahead landscape for digital asset innovation in the US?

Perhaps next month’s joint hearing will provide some of the clarity that lawmakers have repeatedly stressed they are both seeking and ultimately responsible for.