Latest Congressional Hearing Proves Washington Still Divided on Crypto

Third Hearing in a Month

June 30’s hearing came on the heels of two crypto-related hearings that month. On June 9, the US Senate Banking Subcommittee on Economic Policy held a hearing to explore the possibility of a digitized dollar. On June 15, the House Fintech Task Force held a similar hearing to evaluate the potential of central bank digital currencies (CBDCs).

June 30’s hearing featured several expert witnesses, including Coin Center’s Director of Research Van Valkenburgh and the Open Markets Institute’s Director of Financial Policy Alexis Goldenstein.

Fiat is a Worse Money Laundering Culprit 

Rep. Anthony Gonzalez (R-OH) pointed out that 99% of money laundering done through Fiat money goes unprosecuted. His statement was a response to the debate about cryptocurrencies and anti-money laundering. Gonzalez referred to a statistic by crypto fund Andressen Horowitz general partner Katie Haun. Haun, former Justice Department for cyber and crypto crimes, made that observation in an interview with Kyle Bass in 2019.

Crypto detractors and a huge section of the media love to play up crypto as mainly a conduit for money launderers. What they never say is money laundering cases via crypto pale in comparison to those enabled by Fiat. Gonzalez wanted to know “the commentary around whether we should allow cryptocurrencies to exist along AML lines, I would ask, compared to what? Compared to fiat where 99% of money laundering goes un-prosecuted?”

Even influential traditional finance player SWIFT has previously debunked that notion, stating in a report that identified cases of money laundering via crypto “remain relatively small” compared to those done through traditional methods. Making a case for calculated rather than blanket regulation of cryptocurrencies, Gonzalez noted that “If you want to ban risk, you also ban reward and you ban innovation.”

Is it 2008 all over again? 

Subcommittee chair Rep. Al Green (R-TX) expressed his fear that we might be witnessing the events that led to the 2008 financial crisis. Green spoke of the “consternation” he felt, which according to him, “emanates from 2008.” He invoked the $700 billion bailout package that he then voted against, which his constituents had encouraged him to do, but were later outraged at.

The 2008 crisis was triggered by subprime debt and products with “exotic features” that greatly undermined the financial system. Green feared that the euphoria surrounding the crypto industry is reminiscent of that time.

But Rep. Gonzalez once again sought to contradict that opinion, referencing the notorious volatility of Bitcoin throughout its history. According to him, the government has never had to step in and “prop up crypto markets”, so they’re just fine.

Gonzalez’s point was bolstered by Van Valkenburgh, who reminded everyone that cryptocurrency is un-backed, and therefore it has no promises. Something that has no promises, per Valkenburgh, doesn’t need bailing.

Washington is Divided 

Crypto fans noted with displeasure Rep. Brad Sherman’s remarks, after he dismissed cryptocurrencies as “highly volatile” and suggested people with “animal spirits to take risks” should invest in American companies or the California Lottery to fund schools in his state.

Other legislators have completely different views about crypto. Rep. Tom Emmer (R-MN) actually believes that uncertainty with regulation is stifling the industry. Emmer recounted the story of his many encounters with crypto innovators who wish for more clarity with regulation in the country. According to Emmer, it’s high time crypto was defined as either securities, commodities, or treated just as Fiat currency.

Even outside of the hearing, some legislators see the potential of cryptocurrency. Wyoming Senator Cynthia Lummis (R-WY) recently told CNBC she’d like to see Bitcoin and other cryptocurrencies as a normal part of citizens’ diversified asset portfolio so as to hedge against inflation.

And Tom Emmer, who is also the National Republican Congressional Committee chairman, recently announced the committee would start accepting crypto payments.

We Don’t Know A Lot

Despite cryptocurrencies being hosted on public and transparent blockchains, we’re still in the dark about many aspects of the industry. Due to it being a freewheeling, rapidly evolving industry, it’s a bit difficult to pin down its real size.

Also, there’s no standard price for cryptocurrencies at any given time. Prices vary depending on the exchange’s liquidity.

This is one of the things holding crypto back when it comes to certainty about regulation. This is a fact that was highlighted by the managing director of the Stevens Center for Innovation and Finance, Wharton School at UPenn Sarah Hammer. “At the outset, it is worth noting that there’s no official public data source for cryptocurrency prices, market size or volatility.”

According to Hammer, this poses a disadvantage for regulators who are at a loss on how to draw nuanced policies that don’t regulate the sector at the expense of innovation.

What’s the Way Forward? 

US lawmakers are turning up the heat on crypto. That’s as a result of the industry having strengthened its foothold in the financial space this year more than before.

It’s okay for lawmakers to increase their scrutiny on the industry. If the status quo remains, that means a lack of regulatory clarity and hence stagnation. On the other hand, regulators must be wary of over-regulating — and in effect, stifling innovation in the space.