The United States Senate Committee on Banking, Housing, and Urban Affairs held a hearing on cryptocurrency and blockchain regulation today, July 30, 2019. This is the third in a series of cryptocurrency-specific hearings in Congress that began two weeks ago with Libra’s rounds in both the US House of Representatives and the Senate.
The Libra hearings were significantly longer than they are today (two hours and 18 minutes in the Senate and six and a half in the House of Representatives). Politicians underscored these sessions with concerns about Facebook’s past privacy and data scandals. If Facebook can’t keep our data safe – and, moreover, if we can’t trust what it says compared to what it actually does with that data – then why should regulators trust something like Libra with monetary policy ?
In the specter of these ubiquitous fears, Bitcoin looked good by comparison.
Regulate the inevitable
Today’s hearing played out like a continuation of some of the broader congressional questions on cryptocurrency during the Libra discussions. Lawmakers grilled three panellists – Jeremy Allaire, CEO of Circle; Professor Mehrsa Baradaran at the University of California at the Irvine School of Law; and Congressional Research Service specialist Dr. Rebecca Nelson – on topics largely focused on promoting proper regulation of cryptocurrencies, as well as the benefits (and obstacles) that blockchain technology poses as a burgeoning disruptive technology.
The discussion expanded the avenues of conversation about the difference between Bitcoin and Libra and even the difference between Bitcoin and the crypto industry with the thousands of assets it spawned.
“Facebook’s Libra project has sparked renewed interest in digital currencies and blockchain in general,” said committee chairman Mike Crapo in his opening address. “Although Libra started this conversation, the blockchain and cryptocurrency system is diverse. It seems to me that this technology and other digital innovations are inevitable. They could be an advantage, and I believe the US should be leading the way in their development. That doesn’t work without clear traffic rules. “
Therefore, Senator Crapo showed particular interest in how cryptocurrencies “interact within the US and international regulatory framework” as well as the myriad types of cryptocurrencies and “their difference between the digital currency proposed by Facebook”.
In the interest of the “public good”
Following these remarks, ranking member Sherrod Brown, who asked David Marcus of Libra particularly persistent and skeptical questions about the Facebook project, reiterated his conviction that monetary policy is too precious to centralize in the hands of the Silicon Valley elite .
Looking back on the 50th anniversary of the Apollo 11 moon landing, he said in his opening speech: “These Americans didn’t do it for profit reasons. They did it to serve their country, and their success has been shared by all Americans … It’s a reminder that some infrastructures work better than [a] public good, and we shouldn’t let banks and large corporations control it. “
Perhaps inadvertently, the senator’s remarks echoed Meltem Demirors’ comments before the House of Representatives on a panel of experts after the Libra hearing in which she took the view that Bitcoin is a public good, with its free and open-source nature that is open to everyone suitable, who wants to access it.
“Is it any wonder that so many people have lost confidence in the system, enthusiastically embracing Bitcoin, a new alternative, non-state currency that was introduced after the crisis to respond to the financial system?”
When asked about this feature in her opening address, Professor Baradaran asked, “Is it any wonder that so many people have lost confidence in the system? [following the Great Recession]”Have you enthusiastically embraced Bitcoin, a new alternative non-state currency that was introduced after the crisis to respond to the financial system?”
As an academic focused on financial inclusion, however, Baradaran does not accept Bitcoin’s promise to fund the bank without a bank account. She believes it is policy, not technology, that underserves financially disenfranchised communities.
The constant call for regulatory clarity
Still, the industry itself needs clearer guidelines and regulations, believes Allaire, like him at “Congress [to] to adopt national guidelines that define and establish digital assets as a new asset class. “
Senator Crapo said that given the richness and complexity of the ecosystem, it can be difficult to differentiate between cryptocurrencies in order to create the right framework. Bitcoin as a digital commodity, for example, is a different egg than a security token or something like scales. He asked Allaire directly how regulators should approach the many iterations of crypto.
Allaire reiterated that the one-size-fits-all approach will not work.
“When you hear about Bitcoin or Libra, it’s easy to assume they’re the same stuff,” Allaire said. “I think one of the first things regulators and policymakers need to do is differentiate between the digital assets that are emerging.”
He added that regulating custody is essential in response to cyber threats.
“A lot of these digital assets don’t easily match the classifications we have in our financial system,” he later replied when Senator Crapo asked if the lack of regulatory clarity recently led Poloniex, a subsidiary of Circle, to move its overseas office to relocate to Bermuda.
Business initiation elsewhere
The fact that the regulatory climate in the USA is comparatively cooler than in other countries, such as Switzerland, became a hot topic in the discussion.
“Do you agree to let cryptocurrencies leave the US?” Senator Jon Tester asked Nelson.
“It is certain that other jurisdictions are ahead of the United States to become cryptocurrency hubs … they use regulations to push cryptocurrencies to their limits … specific regulations to oversee one of Capitol Hill’s biggest problems: money laundering.
Chairman Crapo would follow Tester’s comments and ask Nelson to describe which countries provide “equivalent” cryptocurrency regulation and the defining characteristics of such regulation. She cited Switzerland’s clear ICO guidelines as these tokens relate to securities regulations, anti-money laundering safeguards, and guidelines for incorporation into the country as a crypto company.
What did we learn?
Underpinning all of these talks, some Senators, and Baradaran in particular, expressed concerns about the concentration of monetary policy in the hands of the technology sector. For example, Senator Brown, overwhelmingly aware of the threat posed by Facebook’s Libra, compared big tech’s aversion to regulation to Wall Street’s own avoidance. Lax regulation, he added, did little to tame the economically destructive interests of these institutions in the run-up to the Great Recession.
“What is happening in the crypto market, a lot of these companies just want to create an alternative to the US dollar,” Baradaran said in one of her replies to Senator Brown. “I cannot imagine that this body would want to delegate this power to make money to the private market.”
There is an underlying irony in remarks like this and Senator Brown’s that either focus broadly on large tech crypto companies or ignore the differences between public, non-license projects like Bitcoin (which have no flagship) and private endeavors like Libra. Bitcoin is not a company, and to the extent that we consider it a public good, there is a risk that it will be summed up in companies’ efforts to create a new currency by calling its market private while calling its market private Sector exists.
Getting a grip on the potential of Bitcoin
Although the Senators followed Allaire’s warning to differentiate between different coins and projects in the crypto arena, the Senate, unlike the House of Representatives, did not make a particularly clear distinction between Bitcoin and its competitors in its Libra hearing.
However, some members, such as Chairman Crapo, showed an implicit understanding that a true decentralized cryptocurrency like Bitcoin has a stronger regulatory role than a centralized digital currency.
“If the US should decide – and I’m not saying we should – we don’t want any cryptocurrency in the US, let’s ban it,” said Crapo. “I’m pretty confident we couldn’t do it because this is a global phenomenon.”
He adjourned the session and closed on a token of optimism and determination about the US government’s future approach to this emerging field of technology.
“That is of course a very critical topic. I want the US to stay at the forefront of this new creative technology. I believe it has incredible potential that can be used for good and carries incredible risk that can be used for bad. And we just have to get that under control. “