U.S. House committee examines possible crypto regulations

by Alex Thomas
Arkansas Democrat-Gazette
June 14, 2023

WASHINGTON -- More than a week after Republicans in the U.S. House of Representatives unveiled a legislative proposal concerning digital assets, the House Financial Services Committee met Tuesday to discuss the appropriate steps in determining fitting regulations.

The committee's hearing provided a space for lawmakers to examine two related proposals for establishing a regulatory framework, with legislators contending such rules are necessary for keeping the United States competitive in an international marketplace.

"We are at a critical moment for American dynamism," Committee Chairman Patrick McHenry, R-N.C., said.

"We can choose the side of financial freedom, innovation, inclusion and American competitiveness and important consumer protections at the same time, or we can let this moment pass us by and surrender our leadership of the global financial system to other countries."

McHenry and Republican leaders with the House Financial Services and Agriculture committees unveiled a legislative framework June 3 to address gaps in existing regulatory structures. Federal lawmakers have increased efforts targeting cryptocurrencies and other digital assets given these items' rising popularity and risks exhibited by recent failures, such as the collapse of cryptocurrency exchange FTX.

While state and federal agencies regulate cryptocurrencies and digital assets, these structures often predate the creation of these items, resulting in confusion surrounding regulatory authority. The Commodity Futures Trading Commission has limited power, and the Securities and Exchange Commission can take action against illegal activities.

Rep. French Hill, R-Little Rock, helped with introducing the discussion draft earlier this month. The vice chair of the House Financial Services Committee, Hill serves as chair of the committee's Subcommittee on Digital Assets, Financial Technology and Inclusion.

"We've gotten good response from that, from both Democrats and Republicans," Hill told the Arkansas Democrat-Gazette before Tuesday's hearing on the framework.

The Digital Asset Market Structure Discussion Draft would provide the commodities commission with the authority to oversee digital commodities while defining the SEC's jurisdiction with assets that are part of an investment contract. The framework would also impose consumer protections affecting firms registered with the agencies.

"The draft bill will provide a workable path for trading platforms to register with the SEC and/or the Commodity Futures Trading Commission," McHenry said.

The hearing also focused on a proposal on regulating payment stablecoins, cryptocurrencies whose values are tied to stable assets like the U.S. dollar.

The United States is not the only country dealing with an absence of regulations affecting cryptocurrencies and digital assets, but lawmakers and hearing witnesses noted the importance of congressional action. The European Union Parliament in April approved rules for tracking transfers and supervision.

"Lack of clarity around regulations involving the issuance of tokens holds back quite a few innovators from actually residing in the United States, and we're seeing actual people who are active in this field move wholesale out of our borders to other jurisdictions," said Emin Gün Sirer, the founder of blockchain platform Ava Labs.

Jeremy Allaire, who serves as chief executive officer of digital currency firm Circle, argued rules for stablecoins are necessary for protecting not just digital assets but the U.S. dollar.

"The steps the U.S. government takes now will have a significant impact on dollar competitiveness in the decades to follow," he said. "Failing to take the appropriate steps could have devastating consequences for America."

Another person who has voiced support for a regulatory framework is Treasury Secretary Janet Yellen. The Financial Stability Oversight Council, which Yellen leads, has recommended congressional action to address gaps in current rules.

Yellen stood behind the recommendations when appearing Tuesday in a separate House Financial Services Committee hearing.

According to Hill, lawmakers have met with the Federal Reserve and Treasury Department to discuss possible regulations. House and Senate members have additionally held bicameral meetings concerning possible action.

"I'm looking forward to continuing to make progress on these two pieces of legislation, and hope that we can craft a regulatory framework that's good for investors [and] consumers, and makes America competitive in this space," Hill said.

One witness argued against creating new laws regulating digital assets; Aaron Kaplan spoke to lawmakers about Prometheum, an SEC-registered firm he founded.

"There is a compliant path forward for crypto in the United States that the SEC has clearly laid out," he argued.

"Those who argue for new laws are simply not willing to comply with existing applicable securities laws and regulations. New legislation is not in the best interest of the investing public or the blockchain industry. Legislative efforts will take years to implement while the American public will continue to operate on reckless, unlawful platforms."

The House Agriculture Committee discussed the legislative framework on regulatory powers during a June 6 hearing. The House Agriculture Committee and its Senate counterpart handle issues involving commodities -- including cryptocurrencies -- and related transactions.

Besides Hill, Arkansas is set to play a significant role regarding cryptocurrencies and digital assets. Rep. Rick Crawford, R-Jonesboro, serves on the House Agriculture Committee, and Sen. John Boozman, R-Rogers, is the top Republican on the Senate committee.

"There are at least three vape shops in my hometown that say, 'buy crypto here.' That's problematic," Crawford told commodities commission chairman Rostin Behnam during last week's House Agriculture Committee hearing.

"On that score, I would say that's why we have to do this regulatory measure because we don't need just Joe Schmo at a vape shop selling crypto, but this seems to be widespread."

McHenry invited colleagues to provide input about possible regulations, but stated the committee should advance legislation to the full House next month.

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