Preview of Congressional Joint Hearing on Crypto Regulation

Over the past few weeks, Congress – specifically the House Financial Services Committee – has held a series of hearings on crypto and its role in the world. Even a hearing ostensibly focused on overseeing the US Securities and Exchange Commission saw instead mostly questions about crypto and climate issues. Tomorrow we will see another hearing, held with the House Agriculture Committee, specifically discussing crypto regulation.

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“Regulatory clarity,” as the crypto industry defines it, can come in one of two ways: Either a federal regulator issues formal guidance and regulations that address some concern, or Congress passes a law that defines those concerns. Regulators such as the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) have issued some proposed rules (bringing backlash from the industry in some cases), but in general, hopes were focused on Congress potentially taking action. We’re going to see another hearing start this week that hopes to address the crypto market.

Congress continues to grapple with the idea of ​​crypto regulation. What the fresh guidance will look like in practice is still up in the air, but lawmakers are taking another swing at the issue on Wednesday.

We don’t know for sure if any actual legislation will move forward this year. The industry expectation was that a stablecoin bill would have the best chance of success in terms of becoming law. Those expectations were pretty dashed during a hearing on stablecoins earlier this month when Congresswoman Maxine Waters (D-Calif.), the ranking member of the House Financial Services Committee, said the bill reflected the thinking of last October — and that, in her had to “start from scratch”.

Granted, the Senate Banking Committee never publicly appeared to be close to getting involved with the bill, but the fact that the House had a bipartisan product suggested there was a chance. It’s dead now.

Despite this, lawmakers seem optimistic about the chances of a bill being signed into law within the next year.

At Consensus 2023 the other week, I asked Congressman Patrick McHenry (RN.C.), the chairman of the Financial Services Committee, if he thought there was a path for the bill to become law this year.

Sen. Cynthia Lummis (R-Wyo.), the other lawmaker on stage with me, seemed equally optimistic.

From the House perspective, the next step toward legislation remains Wednesday’s hearing, which begins at 9:30 a.m. ET and features former Commodity Futures Trading Commission Chairman and current Harvard researcher Timothy Massad, Republic Crypto Head Andrew Durgee, Wilmer Cutler Pickering Hale and Dorr partner Matthew Kulkin, Kraken Chief Legal Officer Marco Santori and Web3 Foundation Chief Legal Officer Daniel Schoenberger.

In his written testimony, Massad said one problem is the lack of a federal spot market regulator for cryptocurrencies that are not securities, and the debate surrounding how to even classify whether a given crypto is a security or not.

“SEC Chairman Gary Gensler says most tokens are securities and the problem is a lack of compliance with existing legal requirements. Industry participants complain about a lack of clarity in the rules to address this issue and have asked regulators to create a new set of rules specifically for crypto,” he said. “Meanwhile, trading and lending platforms claim that they only trade in tokens that are not securities – thereby avoiding direct federal oversight. As a result, investor protections on crypto trading and lending platforms are woefully inadequate.”

Massad proposed that Congress pass a law establishing certain principles and standards that any exchange must follow, regardless of whether the token listed is a security or a commodity.

Doing so, he argued, would negate the need to expand the definition of securities laws or create a new category system for digital assets, while still encompassing the entire crypto market.

The hearing also includes a joint proposed resolution that states Congress must provide additional guidance to the US Securities and Exchange Commission and the Commodity Futures Trading Commission on how to bring existing regulatory protections to the crypto sector.

If you have thoughts or questions about what I should discuss next week or any other feedback you’d like to share, feel free to email me at [email protected] or find me on Twitter @nikhileshde.

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