US Congress Hearing "Examining the Cryptocurrencies and ICO Markets" - Summary

Summary of the Subcommittee on Capital Markets, Securities, and Investment (Committee on Financial Services) Hearing: “Examining the Cryptocurrencies and ICO Markets” held on Wednesday, March 14, 2018 (10:00 AM)

General summary of the hearing

• The hearing was devoted to discussing cryptocurrencies, initial coin offerings (ICOs), and whether the current regulatory framework adequately protects investors.
• Drawing from a mix of academic and industry witnesses, the hearing highlighted the divergent viewpoints on the technology held by some of the members of Congress.
• Ultimately, many subcommittee members expressed a commitment to strike a balance between oversight and the accommodation of technological innovation.

Closing statement by the subcommittee chair, Rep. Bill Huizenga (R-MI)

“I believe this is probably hello, not goodbye.”

Positive viewpoint

• Rep. Tom Emmer (R-MN)
  • a member of the cryptocurrency-friendly Congressional Blockchain Caucus
  • criticized politicians for calling for new regulations without taking the time to research and develop an adequate understanding of the technology
  • Some twitterers granted him the title of new “cryptodaddy”

“I hear elected officials who don’t have any concept of what we’re dealing with here and how exciting it is talking about, ‘Oh my gosh, we’ve got to run in and regulate and create more government infrastructure,’” commented Emmer, adding that although there needs to be modest cryptocurrency regulation, the access to capital that ICOs provide “is something Democrats and Republicans should celebrate.”

Negative viewpoint

• Rep. Brad Sherman (D-CA)
  • His biggest contributors are in finance and securities
  • Used all the old and regurgitated arguments to bash crypto, really didn’t offer anything new
  • Called cryptocurrencies a “crock” and expressed doubt that they can be used to accomplish any social good that cannot be achieved otherwise
  • Lots of backlash on twitter

“Perhaps we’ll have another hearing after a major terrorist event” is financed using cryptocurrency,” he quipped, adding elsewhere that cryptocurrencies are only “popular with guys who want to sit in their pajamas and tell their wives they’re going to be millionaires.”

Other views

• Rep. Ted Budd (R-NC)
  • Applauded ICOs and other blockchain-related fintech advancements
  • Cautioned that the wrong regulations could threaten the US’ status as fintech leader

“Regulation in this space is something that the U.S. has to get right, because poor or rushed policy in cryptocurrencies really threatens our reputation in finance and technology,”

• Rep. Carolyn Maloney (D-NY)
  • the ranking Democrat on the subcommittee
  • working on a cryptocurrency oversight bill that would cover exchanges that offer trading services for digital assets

• Rep. Bill Huizenga (R-MI)
  • chairman of the Capital Markets, Securities and Investment subcommittee
  • declared his intention to pursue some kind of legislative action

"This panel, this Congress is not going to sit by idly with a lack of protection for investors."

Coinbase view (local player in the industry):

• Awesome technology with great potential
• Can only realise this through responsible regulation
• Lack of understanding, and thus, the lack of suitable regulations is harming the space
• Because of this uncertainty, coinbase only operates with 4 cryptocurrencies: BTC, BCH, LTC and ETH
• Coinbase, he said, determined that these digital assets qualify as a "virtual currencies"
  1. the CFTC's 2015 guidance that bitcoin and other virtual currencies are commodities,
  2. a recent ruling that supported the CFTC's classification of bitcoin as a commodity
  3. the SEC's July 2017 DAO report, which referred to Ether as a virtual currency.

Mike Lempres, Chief Legal and Risk Officer at Coinbase wallet and cryptocurrency exchange, stated that the power of the digital currency’s technology can transform “capital formation, innovation and economy,” saying that its “tremendous potential” can be only achieved through “responsible regulation.”

However, at the current stage, the US regulatory system “is harming healthy innovation” due to a lack of understanding of what should be allowed and what should be not, and how digital assets should be considered; either as securities, commodities, property, or money.

For Lempres, the goal is to ensure that potential benefits from new technology are not harmed by uncertainty resulting from "regulatory or legal missteps.” Lempres provided a short review of the main US regulatory bodies such as the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Internal Revenue Service (IRS), the Financial Crimes Enforcement Network (FinCEN), and Federal Trade Commission (FTC)

According to Lempres, the SEC, which is in charge of securities transactions, considers crypto as securities, while the CFTC who fully controls commodity derivatives transactions, claims that tokens are commodities. FinCEN has full authority for Know Your Customer (KYC) and Anti-Money Laundering (AML) matters, and considers tokens to be money. Meanwhile, according to the IRS, the digital coins should be considered as property for tax treatment. According to Lempres, this constitutes an extreme “lack of coordination.”

Answering a question from the Subcommittee chairman Rep. Bill Huizenga, Lempres stated that Coinbase cannot start supporting ICOs until the necessary regulations are adopted.

“We do not support any [ICO] at the current time because we are not sure what the regulatory [treatment] is… We are waiting for the dust to settle between the CFTC and SEC before we electively engage on supporting ICOs.”

Resources

Video of the hearing -

• Strong Words, Little Action: ICOs Draw Fire at US Congress Hearing
  https://www.coindesk.com/strong-words-little-action-icos-draw-fire-us-congress-hearing/
• Crypto Is a 'Crock'? Twitter Reacts to House ICO Hearing
  https://www.coindesk.com/crypto-crock-twitter-reacts-house-ico-hearing/
• At DC Hearing, Coinbase Calls Out Federal Regulators For ‘Harming Innovation’
  https://cointelegraph.com/news/at-dc-hearing-coinbase-calls-out-federal-regulators-for-harming-innovation
• US Congress Debates ICOs, Cryptocurrency Regulation in House Subcommittee Hearing
  https://www.ccn.com/us-congress-debates-icos-cryptocurrency-regulation-in-house-subommittee-hearing/

An analytical piece on how the hearing relates to and impacts ETH
https://www.ethnews.com/financial-services-committee-hears-testimony-on-cryptocurrencies-icos

Reddit
https://www.reddit.com/r/CryptoCurrency/comments/84h90o/the_california_congressman_who_hates_crypto_is/
https://www.reddit.com/r/CryptoCurrency/comments/84e8fe/this_is_tom_emmers_twitter_he_made_some_seriously/
https://www.reddit.com/r/CryptoCurrency/comments/84dxzu/us_house_subcommittee_holds_cryptocurrency/