“Bullish.” “A sigh of relief.”
These were just some of the comments that came from industry observers in the wake of a hearing held Tuesday by the U.S. Senate Committee on Banking, Housing and Urban Affairs, one that addressed the question of how lawmakers should consider cryptocurrency regulation.
Widely anticipated due to its positioning amidst what has been one of the biggest industry bubbles, the event saw the heads of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) testify on a range of topics including market oversight, price volatility and the regulatory concerns around initial coin offerings (ICOs).
However, it was perhaps the measured and sophisticated nature of the dialogue that most stood out to observers queried.
Stephen Palley, an attorney for Washington, D.C.-based law firm Anderson Kill, said he was impressed at the level of knowledge displayed by both the committee members as well as the regulators themselves about such a seemingly esoteric topic as cryptocurrency.
“It’s amazing that nine years after the Satoshi white paper, you’ve got senators talking about this [stuff] and not pooh-poohing it.”
Attorney Zoe Dolan struck an optimistic tone in the wake of the hearing as well, taking to Twitter to write that “this hearing has made me so bullish I can hardly stand it.”
“As a lawyer – and a criminal defense lawyer in particular – I was heartened to hear acknowledgment that existing laws suffice to address age-old human conduct,” she later told CoinDesk, adding: “Fraud is fraud.”
Berger Singerman LLP partner Andrew Hinkes also highlighted the admission from both agencies that there is a need for more resources to keep an eye on a rapidly-expanding industry.
“Although this may stoke fear in the community, more resources may lead to better, more thoughtful and more facilitative regulation. Regulation is helpful when it provides useful guidance,” he said.
More clarity needed?
Optimism aside, some market observers said they believe the hearing revealed the need for more clarity on the regulatory front – something that both agency chairs indicated may be necessary in statements that broached possible action from the U.S. Congress.
Reading between the lines of Clayton’s remarks, Carol van Cleef, a veteran Washington banking lawyer, said a key takeaway was the “need for clearer jurisdictional lines.”
And though he made a point of the fact that the SEC is coordinating with the CFTC and Federal Reserve, Clayton “kept talking about the patchwork system,” van Cleef said.
“If he didn’t say it specifically,” she continued, “he [implied] that it isn’t enough for this space.”
The subtext, she said, is that “somebody’s got to take control of this at the federal level.”
This could be problematic for businesses, such as bitcoin exchanges, that have spent the last few years building compliance programs under the framework of money services businesses registered with FinCEN and money transmitters licensed by the states.
“I did not hear enough today recognizing those kinds of efforts,” van Cleef said.
Bigger picture understanding
Others who took in Tuesday’s hearing highlighted another cause for celebration: that both lawmakers and regulators seemed to agree that cryptocurrencies are here to stay, risks aside.
Indeed, both Giancarlo and Clayton remarked on the possible uses of the tech, with the CFTC head scoring points among the crypto-community for his comment, “If there were no bitcoin, there would be no distributed ledger technology.”
This sentiment was expressed by several senators in attendance as well.
Coin Center executive director Jerry Brito said of the hearing:
“Senators and regulators are certainly concerned about fraud and volatile markets in cryptocurrency, but it was clear from today’s hearing that they also understand, as Senator Warner suggested, that it may be as transformational as mobile telephony.”
According to Palley, the takeaway may ultimately be that U.S. policymakers “understand the technology” and are willing to engage in “responsible enforcement and regulation.”
What comes next
One of the obvious questions remaining in the wake of the hearing, however, is what actions – both from Congress and the regulators – is to come.
Indeed, while Clayton himself remarked that the agencies may approach lawmakers asking for wider powers or more sophisticated oversight tools, Congress could, in theory, take the first step on its own. Van Cleef said she was struck by the way Clayton “made it clear that the gatekeepers, lawyers and accountants are subject to SEC jurisdiction.”
That made her think that “there must be something in the offing” in terms of regulatory actions against such professionals, she said.
Testimony about coordination between federal and state-based regulators, aimed at addressing what Clayton characterized as a “patchwork” of rules, signals that additional steps could be taken on that front in the coming months.
Perianne Boring of the D.C.-based trade organization, the Chamber of Digital Commerce, pointed to this as a positive sign.
“We’re encouraged that the SEC and CFTC are working with others to address the patchwork of regulation that suppresses growth and consumer choice, and provide a runway for the U.S. to retain its leadership in technological innovation,” she told CoinDesk in an email.
Likely to come, as suggested by Palley, is a push from both agencies to step up their enforcement efforts against bad actors in the space.
“If you’re somebody who’s an innovator and not afraid of the law, this was quite positive. If you’re running a $200 million ICO and didn’t follow the law you might be a little worried now.”