On March 14, the United States Congress held a hearing with a House Financial Services subcommittee on capital markets, securities, and ICO markets to speak about cryptocurrencies and ICOs. Also present at the hearing were legal and academic crypto experts, including (among others) Mike Lempres, chief legal and risk officer at Coinbase, and Dr. Chris Brummer, Professor of Law at Georgetown University.
The hearing addressed plenty of important topics with relation to crypto, but as some who were present at the hearing have noted, the path forward with crypto regulation is complex. While this conversation was certainly important, it is only the first of many that must be had to fully understand how to appropriately regulate cryptocurrency in the United States.
Strong Words on Both Sides of the Crypto Debate
The two figures with the strongest views about crypto were Representatives Tom Emmer (R-MN) and Brad Sherman (D-CA).
Sherman dismissed cryptocurrencies as a “crock” and said that “they allow a few dozen men in my district to sit in their pajamas all day and tell their wives they’re going to be millionaires.”
Crypto users on Twitter had some choice words for Sherman, who many accused of not being sufficiently educated on the matter.
“Cryptocurrencies are a crock. They are popular with guys who sit around in their pajamas and tell their wives they’re going to be millionaires.” – Congressman @BradSherman
Technological illiteracy aside, thank you for the sexist slight.#ICOsInTheHouse
— Sarah Howland (@sarahvhowland) March 14, 2018
Emmer, who has shown interest in blockchain technology in the past, said to the room that cryptocurrencies are “a huge topic that cannot possibly be scratched even in five minutes.”
In what may have been a rather pointed remark, Emmer also said that “I hear elected officials who don’t have any concept of what we’re dealing with here…talking about ‘we have to go in and regulate…I realize there has to be some regulation, but there’s got to be balance.”
Emmer’s bullish attitude may have even earned him a new nickname:
— Neeraj Thakur (@NeerajT4) March 14, 2018
Drawing the Regulatory Line Between ICO Tokens and Major Cryptocurrencies
Perhaps the most prominent point of discussion throughout the hearing was the distinguishment of major cryptocurrencies from most ICO tokens.
Peter Van Valkenburgh director of Research at CoinCenter, told the room that the biggest difference between major cryptos and ICO tokens is scarcity: “the fundamental innovation of Bitcoin is digital scarcity. That digital scarcity can then be employed by innovative people for a variety of innovative purposes.” He added that scarce tokens can be used the same way that fiat can.
From a regulatory standpoint, Van Valkenburgh said that this is important because “there is a fundamental distinction that must be made between scarce tokens that exist on a blockchain and are used for payment or to obtain computing services and, on the other hand, promises of future tokens representing the hopefully profitable efforts of a developer.”
In other words, scarce tokens behave more like commodities, while ICO tokens are more like securities.
Evening Out the Regulatory ‘Patchwork’
Another important topic raised throughout the hearing was whether existing laws that regulate various aspects of the financial world could be stretched to cover cryptocurrency, or if new regulations need to be developed.
At the moment, several government institutions are attempting to regulate crypto–efforts that have resulted in several contradictory statements.
What a nightmare this is. SEC says “all ICOs” its seen are sales of securities, but FinCEN says they are “generally” money transmission.
But by law, they can’t be both.
— Marco Santori (@msantoriESQ) March 6, 2018
Also addressed at the hearing was the need to develop protections for investors, to enforce security standards for cryptocurrency exchanges, and to standardize KYC and AML requirements for crypto investors.
Throughout most of the hearing, it remained clear that legislators are not interested in regulating cryptocurrency to the point of stifling innovation. Rather, it seemed that the United States Congress, which has been often described as dysfunctional, was at least partially intent on finding a balanced path forward.
Indeed, Representative Bill Huizenga (R-Mich.) noted that the hearing was “hello and not goodbye” for cryptocurrency regulations.
“This panel, this Congress is not going to sit by idly with a lack of protection for investors,” he said.