While cryptocurrencies have exploded over the last couple years, U.S. regulators have been slow to keep up, leaving crypto investors at risk of being swindled out of thousands of dollars or more. On Wednesday, the first major in-person faceoff will occur between crypto companies and regulators, when six key crypto executives will arrive in Washington for a Congressional hearing. Led by Maxine Waters—an advocate of cryptocurrency regulation—members of Congress will likely call upon CEOs to be more accountable to their consumers and investors; the CEOs, conversely, hope to educate lawmakers about their rapidly evolving field and stress the potentially transformative impacts cryptocurrencies could have on the U.S economy. Overly stringent regulations, they fear, could dampen that growth.
The hearings come during a tense time for crypto. Last week, SEC Chairman Gary Gensler once again called for regulation of crypto, calling it an asset class “rife with fraud, scams, and abuse.” Over the weekend, major cryptocurrencies took a nosedive, with bitcoin prices dropping more than 17 percent, while the trading platform Bitmart suffered a hack in which $196 million was swiped, according to a security firm.
Even so, when viewed from a wider lens, cryptocurrencies are still in an enormous boom period: they now make up a $2 trillion market and are being gradually accepted by major institutions. Here’s what to know about the hearing before it begins.
Who will participate in the hearing?
The hearing will be led by Waters (D-CA), the Chairwoman of the House Committee on Financial Services. (The hearing’s full title is “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States.”) Over the last few years, Waters has held several panels on crypto and digital currencies. In June, she pledged a “thorough examination of this marketplace” and warned of the “systemic risks presented by hedge funds rushing to invest in highly volatile cryptocurrencies and cryptocurrency derivatives.”
Waters’ committee has called six witnesses to the hearing, who are executives for major cryptocurrency companies and exchanges including Coinbase, Circle and FTX. Some of them have expressed support for increased regulation: Charles Cascarilla, president and CEO of Paxos, told CNBC last month that “you need regulation, you need clarity in order for everyone to understand how you can operate in the industry.” Sam Bankman-Fried, the CEO of FTX, told Coindesk in September that he would be “excited” to work with the U.S. Securities and Exchange Commission (SEC) on “common-sense regulations.” On Friday, FTX published on their blog a list of ten general proposals that Congress should consider, including the implementation of a single market regulator with a single rulebook, and the requirement that cryptocurrency exchanges “conduct regular anti-money laundering surveillance.”
Other members of the panel have used slightly more contentious language with regards to regulators. Brian Brooks, the CEO of Bitfury group who served as the Comptroller of the Currency under President Trump, told CNBC this week that he hoped the hearings would include discussions about “Kafka-esque contradictions” surrounding cryptocurrency regulations, including the relationship between banks and stablecoins. And in September, Brian Armstrong, the CEO of Coinbase, accused the SEC of “engaging in intimidation tactics behind closed doors” after the SEC threatened to sue the company over a new product called Lend. Perhaps uncoincidentally, Coinbase is the only company not sending their CEO to the hearing: Alesia Jeanne Haas, the CFO of Coinbase Global Inc., will appear instead.
What does cryptocurrency regulation look like at the moment?
Decentralization is baked into the very conceit of cryptocurrency. Major figures in that world have long been extremely resistant to the idea of regulation. Its freewheeling nature has allowed many investors to make enormous amounts of money, including from extremely volatile meme currencies like Dogecoin and Shiba Inu. DeFi, or decentralized finance, has also risen dramatically in usage over the last year, creating an unregulated infrastructure for lending and trading on the blockchain.
More from TIME
But while crypto’s lack of connection to formal institutions is a key part of its appeal, its lack of a central authority has also made it susceptible to theft, fraud and hacks. In June, a cyberattack on the oil company Colonial Pipeline led to a massive shutdown that caused a spike in gas prices and panic buying; the company paid out a $2.3 million ransom that was later recovered by authorities. More recently, a hack of the decentralized finance platform BadgerDAO led to the loss of $120 million. Because transactions on the blockchain are largely irreversible, victims of crypto scams usually have little recourse to recover their money.
These sorts of activities have put cryptocurrencies in the crosshairs of the SEC. Last December, the agency filed a lawsuit against Ripple Labs, arguing that the company violated securities laws when it sold over $1 billion of a digital coin without registering with the commission or providing adequate disclosures to investors. The lawsuit has become highly contentious, with Ripple arguing that the SEC is overstepping its bounds.
Gensler, who was tapped by President Biden to become the new SEC Chairman this year, has expressed plenty of skepticism about cryptocurrencies and called for the need of “guardrails” to protect individual investors from bad deals. Some crypto advocates fear that this animosity could culminate in much larger crackdowns akin to those seen in China–which banned all transactions involving cryptocurrencies–and India, where the government proposed a bill that seeks to ban all private cryptocurrencies in the country.
What do key U.S. officials think about cryptocurrencies?
The first roadblock for the government to set regulations is to determine who has jurisdiction. The SEC and the Commodity Futures Trading Commission (CFTC) have argued over who should oversee the space, creating confusion and redundancy. The acting Comptroller of the Currency Michael Hsu has argued for consolidated oversight of cryptocurrencies, and has pled for “less regulatory competition and more cooperation.” He says that his office’s position should not be “interpreted a green light or a solid red light, but rather as reflective of a disciplined, deliberative, and diligent approach to a novel and risky area.”
In Congress, there are unsurprisingly both allies and skeptics of crypto fiercely advocating their positions. Elizabeth Warren (D-MA) has also been extremely vocal in calling for the regulation of cryptocurrencies. On the other side are Sen. Cynthia Lummis (R-Wyo.)–whose home state of Wyoming has become a cryptocurrency haven–and Sen. Patrick Toomey (R-PA), who says that “cryptocurrency and blockchain technologies be as revolutionary as the internet.” Treasury Secretary Janet Yellen falls somewhere in the middle: she has been wary about cryptocurrencies being used for illegal purposes, but has also said that stablecoins can be useful if they’re carefully regulated.
What legislation might emerge from this hearing?
The session likely won’t immediately produce landmark crypto legislation, but it does signal a desire of members of Congress to learn more about the technology. (There is still plenty of miseducation and misunderstanding around the topic whizzing from all sides, and the learning curves remain very steep.) One proposed bill that could be elevated by the hearings is the Token Taxonomy Act, which aims to specify that digital tokens are not securities.
- These Charts Show COVID-19 Is Still the Pandemic of the Unvaccinated
- Reddit Allows Hate Speech to Flourish in Its Global Forums, Moderators Say
- What It Takes to Get Support for a Black Boy With Special Needs
- Shonda Rhimes Already Knows What You're Going to Watch Next
- How Harry Reid Paved the Way for Democrats to Kill the Filibuster
- President Biden's Speech in Atlanta Was Designed to Appeal to Black Voters—But Not Everything About It Succeeded
- China Is Finding Fewer Reliable Sources of Coal. That Could Be Bad News for the Climate