By Chris Matthews
A path remains open in the House for bipartisan legislation
Leading Democrats in the House of Representatives on Thursday cast a critical eye to Republican and crypto-industry efforts to craft a bespoke regulatory framework for digital asset market structure, though there remain enough friendly Democrats that the hope for bipartisan legislation remains alive.
“We do not need to create an entirely new and special framework for crypto. We already have one,” said Rep. Maxine Waters of California, the top Democrat on the House Financial Services Committee, during a hearing. “Crypto firms, like other tech companies before them, must recognize they’re not exceptional. They need to comply with the laws of the land.”
Waters also pointed to a hearing last week with Securities and Exchange Commission Chairman Gary Gensler, when the regulator told representatives that he had the authority needed to bring crypto companies in compliance with securities laws.
Waters noted that the SEC has yet to lose an enforcement case against a crypto company in the federal judiciary, saying that “the SEC’s success in the courts proves his point.”
Read more: SEC’s Gensler slams digital-asset industry for ‘ignoring the law’ as crypto crackdown continues
Rep. Stephen Lynch, the ranking Democrat on the financial services subcommittee overseeing digital assets, pushed back on arguments that the SEC has not provided sufficient clarity on the question of how existing laws apply to cryptocurrencies, noting that the agency first began warning of the dangers of investing in digital assets ten years ago.
Lynch also made an example of SEC enforcement actions, arguing that “each of those cases went through a legal process, which culminated in every case a written regulatory decision and many had administrative decisions written on appeal that…provide clarity and lay out the rules of the road that should guide other crypto firms.”
See also: ‘Crypto is dead in America.’ How FTX’s collapse instigated a Biden crackdown on the digital-asset sector
Republicans, meanwhile, presented a united front in support of new market structure rules that would set up a new test determining which cryptocurrencies are securities, and therefore must follow existing SEC rules, and which are commodities to be overseen by the Commodity Futures Trading Commission vested with regulatory powers and a bespoke disclosure framework for digital assets.
“This ecosystem has been denied legal clarity for too long, and both market participants and consumers are worse off because of it,” said Financial Services Chairman Patrick McHenry, a North Carolina Republican.
“We have a market that lacks clarity, and we have a duty to create a regulatory environment that allows responsible innovation and responsible consumer protection to sit side by side with appropriate legal clarity,” he added.
McHenry pointed to recent legislation from the European Union and United Kingdom, which have set up separate regulatory frameworks for crypto, arguing these steps put the U.S. at risk of losing innovative companies to foreign competitors.
The GOP is not without allies among some Democrats with less seniority on the powerful Financial Services panel, including Rep. Ritchie Torres of New York.
“If the United States continues to drive crypto offshore, there will be more companies in the offshore, deregulated mold of FTX,” Torres said, referring to the defunct crypto exchange that failed spectacularly last fall. “It seems to me it would be in the interest of the consumer and investor protection to bring crypto into a workable but rigorous regulatory regime.”
Rep. Wiley Nickel, a freshman Democrat from North Carolina, echoed those views.
“I’m concerned that if trading venues were to exit the U.S. markets, that any American looking to trade digital assets would find themselves having to us an offshore exchange,” he said. “As we learned with the failure of Bahamas-based FTX and others, foreign firms are not always well regulated.”
Chairman McHenry hopes to release a bill proposing a new framework for federal oversight of digital assets as soon as next month, according to an interview last week in The Block.
The bill will interest some members of the Senate, including Democratic Sen. Kirsten Gillibrand of New York and Republican Sen. Cynthia Lummis of Wyoming, who released a bill with similar goals last summer.
Nevertheless, passage will be an uphill climb, given Democratic control of the Senate and a Senate Banking Committee led by crypto-skeptical Sen. Sherrod Brown of Ohio, a Democrat.
The Biden administration has also grown more aggressive in its oversight of the cryptocurrency industry, with the White House and Treasury Department each releasing reports in recent weeks raising concerns over the threats crypto poses to the government’s efforts to stop money laundering and the funding of illicit activities, including drug trafficking and terrorism.
Major cryptocurrencies bitcoin and ether were both on the rise Thursday, and both have rallied more than 60% year-to-date.
-Chris Matthews
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04-27-23 1832ET
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