Senators Consider Potential Crypto Regulation
WASHINGTON — There may be a bipartisan cryptocurrency regulation coming. But of course, there are partisan differences over how to protect consumers while maintaining an industry-friendly environment.
Cryptocurrencies, and the blockchain foundation these currencies run on, have experienced greater volatility in recent months — even if the current banking frenzy isn’t to blame, as some initially believed.
The scandal and implosion of FTX were what really sent the crypto industry into a tailspin last year. Since FTX’s breakdown, the pressure has been on Congress to act on crypto regulation, as well as other potential policy regulations, such as on the blockchain. And in the aftermath of several bank collapses, regulation might come faster than anticipated.
“FTX was an inspiring moment in a certain way,” Sen. Thom Tillis, R-N.C., recently told the Bipartisan Policy Center, a D.C.-based think tank. “The last thing that I want to [happen] on my watch here in Congress is to have something along the scale of FTX occur again.
“When you have one crisis, the risk of something really bad happening goes up exponentially. When you have a couple in a reasonably short period of time, the risk goes up even more,” Tillis said.
But while he wants to manage risk, he also understands that Washington doesn’t entirely understand the root causes behind the failures of each of the financial entities.
“One of the risks we’re going to have in Washington … we’re going to see people conflating digital assets, crypto and a number of other things into the argument [on banking collapse],” Tillis said. “And I don’t think we should go that way. It really has nothing to do, in my opinion, with … Silicon Valley Bank.”
While Tillis doesn’t think a comprehensive framework regulation for crypto is going to happen, he does believe that to alleviate public fear any such bill should require crypto companies to show proof of reserves.
“We have to really educate members [of Congress] on what we’re really talking about here,” he said. “The FTX failure definitely says that digital asset custodians need to come under some sort of regulatory regime. I personally think it needs to be a regimen focused on consumer protections and transparency.”
The fact that investments in cryptocurrencies are so volatile has Sen. John Hickenlooper, D-Colo., pushing harder for public policy’s role in the industry.
“If blockchain can increase security, reduce cost and increase transparency — which I think it can do all three of those things — then it can add value,” Hickenlooper said. “If blockchain technology can help us solve some of the challenges we face in dealing with just the mass and size of investments on a global level — that’s something we need to look at. But I do think that the volatility and the way that speculators use cryptocurrency to try to get rich quick is a cautionary tale in and of itself.”
Hickenlooper has previously called on the Securities and Exchange Commission to engage in cryptocurrency oversight and suggested a coordinated regulatory framework to clarify what types of digital assets are securities; address how to issue and list digital securities; determine what disclosures are necessary for investors to be properly informed; establish a registration regime for digital asset security trading platforms; and set rules on how trading and custody of digital assets should be carried out.
“When you get into realms that are highly technical and sophisticated, the average American, they’re just not equipped to deal with that … mass of information and whole new concepts,” he said.
Hickenlooper believes that a bipartisan congressional regulatory bill would offer Americans more trust in cryptocurrencies and the blockchain.
“FTX … affected everyone’s perception about cryptocurrencies,” Hickenlooper said. “The brand and currency … took a real hit.”
Tillis disagrees that the SEC should be the regulatory agency that manages cryptocurrencies, saying that he “does not have a lot of confidence in the SEC, particularly in their rapid rule efforts,” but he actually does agree that there is a case for “sound legislation that addresses a lot of the exposures that we see now.”
“This is something that needs to be done and we want it to be fair and we want it to be sustainable,” he said. “I propose a light regulatory regimen that still gives us a comparative advantage in terms of innovation.”
As the entire crypto industry comes under threat from state and federal regulators, Tillis warned, “You can’t unring technological bells.
“You have to understand that if you were to make it prohibitive for this space to grow and innovate in the United States, it’s going to grow and innovate somewhere else.”
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