Updates on Hearings from Capitol Hill
Congress will tackle stablecoins and more going into 2022.
"We don’t need knee-jerk reactions by lawmakers to regulate out of fear of the unknown rather than seeking to understand...That fear of the unknown and the move to regulate before understanding will only stifle American ingenuity and put us at a competitive disadvantage." - Rep. Patrick McHenry (R-NC)
Six top executives from major US-based crypto companies testified before the House Committee on Financial Services on December 8th. Another hearing occurred on December 14th in front of the Senate Banking Committee to discuss crypto and stablecoin regulation. This came during a time in which digital assets have been under intense scrutiny and downward pressure from Senator Elizabeth Warren, among others, and a dispute between two camps of Senators on a crypto provision in the bipartisan infrastructure bill.
Some of the highlights:
Executives from six firms spoke to the House: Bitfury (mining), Circle (stablecoin issuer), Coinbase (exchange), FTX (exchange), Paxos (stablecoin issuer), Stellar (blockchain platform).
Each executive witness spoke about the importance of making sure the US remains dominant on a global stage and takes the lead in the crypto industry.
House congressional members demonstrated that they are in-the-know in their questioning, highlighting a renewed sense of scrutiny over the industry but also a willingness to set an effective regulatory framework.
Rhetoric in Congress has historically focused on the news-catching aspects of digital assets including money laundering, tax evasion and hacking risks, but this time many members of the House outwardly acknowledged that digital assets have the ability to democratize finance and the internet.
In the Senate Banking Committee, the tone was much more challenging and remained a high-level discussion.
Good News for Crypto
A lot of the topics of discussion surrounded the companies at the hearing's policies and business models around stablecoin issuance. Stablecoins are dollar-backed digital assets on the blockchain.
Most of the company executives got a chance to highlight protections already put in place to protect consumer interests, mainly surveillance to protect against money laundering and trading with bad actors. This was an opportunity for them to prove to Congress that there is an active push in the industry to combat fraud and manipulation.
Bi-partisan Congressional Representatives expressed opinions that stablecoins could actually help preserve the dollar’s world reserve currency status, that stablecoin issuers should not be regulated away from engaging in commercial activity, and that a bitcoin spot ETF should be approved.
Most of these positive sentiments occurred during the House committee hearing.
Negative Views Expressed.
Most of the negative sentiment came from the Senate Banking Committee Hearing this week, which was much shorter than the House’s hearing last week. The Senate was mostly split down bi-partisan lines, with Democrats arguing against the viability of digital assets and Republicans arguing in favor. The two major critics were Senators Sherrod Brown and Elizabeth Warren.
“Stablecoins, crypto markets aren't actually an alternative to our banking system, it's a mirror to the same broken system with even less accountability and no rules at all." - Sen. Sherrod Brown
Senator Elizabeth Warren likened DeFi to a playing field of scammers and cheats swindling investors.
Republican Sen. Pat Toomey expressed a favorable view towards stablecoins citing their efficiency and cost saving implications.
The significance here is that the Senate is more split politically on this issue. The House can draft bills favorable towards digital assets that could be stalled in the Senate.
3 Major Takeaways
Despite one of the more productive periods for crypto regulation in recent memory, much more progress needs to be made before there are clear rules forward for crypto companies. Therefore, we can expect much of the same regulatory uncertainty heading into 2022, but are also aware that changes are looming.
Regulation is needed. We believe there will be positive trickle-down effects of sound regulation. Regulation will turn crypto from the wild west into a field that institutions can play in. The SEC and Federal Banking regulators were continually criticized by both Congress and industry participants for lack of guidance.
Stablecoins will be the first issue Congress will tackle. Maintaining the dollar’s status as the world reserve currency is a bipartisan issue that was discussed directly. If stablecoin issuers can help maintain this mission, stablecoins will be the hottest topic in crypto going into 2022.
Centralized entities before decentralized technologies. Congress needs to understand how centralized digital asset companies affect the ecosystem before moving on to more complexities like DeFi and other more volatile cryptocurrencies.
Some key stats:
157 Billion: That's the current market cap of stablecoins.
13 years: Last time the House Committee on Financial Services held a cryptocurrency hearing.
The House hearing lasted over 5 hours, the Senate hearing lasted 1 hour and 45 minutes.
Resources:
Webcast of House Committee Hearing on December 8th.
Webcast of Senate Banking Committee hearing on Stablecoins on December 14th.
Grayscale Report on the House hearing
Sam Bankman-Fried - who testified for FTX - interview on the hearing
➡️ About FirstWatch Crypto ⬅️
FirstWatch Crypto was started by Dan McGlinn (@DigitalDanMcG)and John "Blaize" Hrabrick (@blaizebitcoin) who have been investing in the space for a combined 8 years. FirstWatch Crypto is on a mission to simplify the crypto investment landscape.