Cryptocurrency was all the buzz on Capitol Hill on Thursday. In two separate committee hearings, U.S. legislatures heard testimony on critical issues for the crypto-community.
The meetings held on July 18, 2018, discussed the efficacy of the decentralized economy, and lawmakers’ continual struggle to understand the shifting financial landscape and to implement policy accordingly. Both committees were educated as witnesses testified, complete with exciting moments and unique diatribes.
No Fed Coin For Now
The House Financial Services Committee met to discuss “The Future of Digital Currency.” The primary goal of the session, according to the memorandum released last week, was to explore the merits of the U.S. government considering cryptocurrency and to discuss possible implementation at central banks.
Many have dubbed this adoption a “FedCoin,” to be issued by the Federal Reserve as a digital expression of legal U.S. tender. In May 2018, former officials expressed support for the idea.
The committee heard testimony from seven experts who represented The University of California Santa Barbara (UCSB), The Heritage Foundation, The Brookings Institute, and the R Street Institute.
Professors from UCSB acknowledged the dwindling usefulness of paper money and the rapid change towards a digital economy and concluded,
“I believe that the Federal Reserve will, at some point in the future, need to respond to the disappearance of cash and I have given some reasons why it might consider offering some form of retail-oriented central bank cryptocurrency.”
However, the professors stopped short of endorsing a “FedCoin” citing concerns about the viability and security of digital currencies.
As part of the hearing, Brad Sherman, a Democrat from California, reiterated his hostilities toward cryptocurrencies while exclaiming, “We should prohibit U.S. persons from buying or mining cryptocurrencies.”
His comments were quickly addressed by Dr. Norbert Michael from the Heritage Foundation who forewarned lawmakers about making false parallels between instances of Bitcoin misuse and its propensity to facilitate criminal activity.
In a post-hearing press release, committee members expressed a willingness to continue exploring the potential use cases for digital currencies, but they cautioned that “the pros and cons of which need to be examined further.”
From comments after the hearing, Federal Reserve Chairman Jerome Powell indicated that the Fed is not concerned about the impact of cryptocurrencies on the general financial system, and he directed questions about regulation and oversight to the Securities and Exchange Commission and the Commodities Futures Trading Commission.
Powell also discussed the potential nefarious use cases for Bitcoin and other cryptocurrencies. He told reporters,
“They are very challenging. Cryptocurrencies are great if you’re trying to hide money or if you’re trying to launder money.”
Of course, the hearing and Mr. Powell’s comments occur on the heels of a federal indictment accusing 12 Russian agents of influencing the 2016 Presidential campaign and funding their operation using Bitcoin.
In his remarks, Mr. Powell was clear that the Federal Reserve is not considering its own digital currency at this time.
Meanwhile, in a separate session, lawmakers heard from experts on cryptocurrency and digital assets as they strive to determine an effective regulatory action for digital currencies.
Regulatory Hearing Requires More Study
The second hearing, chaired by K. Michael Conway, chairman of the Commodity Futures Trading Commission Fintech Initiative, heard testimony from six witnesses on the developmental state of the crypto movement and on potential best practices for potentially regulating the tokens.
In his opening statement, Mr. Conway was supportive of digital currencies. He told the committee,
“Digital assets like Bitcoin and Ether, but also like hundreds of other token-based projects that are being developed, represent a new way for people to interact and engage in commerce with one another. While digital assets are often thought of as ‘payment systems’ or ‘digital gold’ I believe the promise that token networks hold is more universal – and more exciting – than that.”
As a result, Mr. Conway and his commission are pursuing a “strong, clear legal and regulatory framework.”
On that topic, Mr. Daniel Gorfine, Director of LabCFTC and the Chief Innovation Officer of CFTC, cautioned,
“Indeed, while some may seek the immediate establishment of bright lines, the reality is that hasty regulatory pronouncements are likely to miss the mark, have unintended consequences, or fail to capture important nuance regarding the structure of new products or models.”
Throughout his testimony, Mr. Gorfine advised against a rapidly integrated regulatory framework.
Throughout the hearing, not all lawmakers were supportive of digital currencies. For example, Minnesota Democrat, Collin Peterson, likened Bitcoin to a Ponzi scheme.
Ultimately, the meetings drew few conclusions for the crypto economy but there was still a general consensus regarding crypto’s merits for a commitment to be further explored.