WASHINGTON—Cryptocurrency industry executives appeared before Congress on Wednesday to argue that their technologies hold promise for the future, as lawmakers and regulators wrestle with how to bring the more than $2 trillion market under government oversight.
The House Financial Services Committee, led by
Rep. Maxine Waters
(D., Calif.), called the hearing in hopes of improving lawmakers’ understanding of crypto assets and how the sector fits into existing regulations. While millions of Americans have invested in crypto assets, many experts say the asset class needs clearer rules of the road, which Congress could provide.
Cryptocurrency is a name given to a broad group of digital assets such as bitcoin. While the assets are criticized by some as volatile, opaque and presenting risks to users and the broader financial system, the industry executives said cryptocurrency can make financial transactions faster, less expensive and more accessible to users around the world.
“The industry has the potential to improve a lot of people’s lives,” FTX Trading Ltd. Chief Executive Sam Bankman-Fried told lawmakers.
Senior executives from stablecoin issuer Circle Internet Financial Ltd., crypto exchange
Coinbase Global Inc.,
bitcoin-mining firm Bitfury Group Ltd., cryptocurrency-payments system Stellar Development Foundation and blockchain firm Paxos Trust Co. also testified. They aim to tout what supporters believe to be the potential upsides of crypto and blockchain technology while playing down the dangers highlighted by many policy makers and consumer-protection advocates.
Ms. Waters raised concerns about the crypto industry’s lack of regulation. “Currently, cryptocurrency markets have no overarching or centralized regulatory framework, leaving investments in the digital-asset space vulnerable to fraud, manipulation and abuse,” she said Wednesday.
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As the crypto industry builds out its lobbying presence in Washington, it has found more allies in the GOP than among Democrats. The top Republican on the financial-services committee, Rep.
of North Carolina, echoed industry lobbyists’ warning Wednesday that excessive regulation of cryptocurrency could push technological innovation to other countries, leaving the U.S. at a disadvantage.
“We don’t need knee-jerk reactions by lawmakers to regulate out of fear of the unknown rather than seeking to understand,” he said. “That fear of the unknown and the move to regulate before understanding will only stifle American ingenuity and put us at a competitive disadvantage”
The executives argued that cryptocurrencies don’t fit neatly within the existing structure of U.S. financial regulations and that lawmakers should consider tailor-made legislation for their industry. Critics say the industry wants to write its own rules to avoid the oversight that banks, brokers and stock exchanges face.
“Because of their nascent stage of development and unique underlying technology, digital assets trade in markets that are fundamentally different from traditional financial markets,” Coinbase Chief Financial Officer
said in her testimony. “As a result, existing regulatory regimes often do not accommodate this new technology.”
Crypto proponents believe that the technology can facilitate faster and cheaper transactions than traditional payment networks and that it has the potential to foster innovation and financial inclusion.
“When you look at the number of people who are underbanked or unbanked, both in the United States and globally, it’s indicative of a system that does not work for everyone,” Mr. Bankman-Fried said. “It’s a product of payments infrastructure that is difficult and clunky enough to use that it just does not work for most people.”
Five percent of American adults didn’t have a bank account in 2020, according to the Federal Reserve.
Lawmakers including Rep.
(D., N.Y.) asked about the potential for crypto to help immigrants send remittances between countries, a process that can be slow and costly through banks or money-transfer companies. Supporters often tout that as a use.
But such transactions remain uncommon. Using cryptocurrency involves a learning curve, mistakes can be irreversible, and there aren’t enough outlets offering crypto remittances to give it a competitive presence.
Many policy makers worry that the rapid growth of the crypto market, which has more than quadrupled in value over the past year, poses a threat to financial stability. They say that the market is rife with fraud, that bitcoin mining wastes vast amounts of electricity and that criminals use cryptocurrencies to evade taxes and circumvent anti-money-laundering laws.
Oversight of crypto markets is spotty in the U.S., where financial regulation is split between federal and state agencies. Major gaps exist, according to regulators.
One of the few confrontational exchanges Wednesday took place between
Rep. Brad Sherman
(D., Calif.) and Ms. Haas over the amount of Coinbase’s transaction fees. Mr. Sherman asked if buying and selling $100 of bitcoin over two days could result in nearly $6 in fees. After initially saying she couldn’t answer the question, Ms. Haas eventually said depending on the product, he could be correct.
Mr. Sherman expressed deep skepticism of cryptocurrency’s potential uses and urged regulators to protect investors if Congress fails to pass meaningful legislation.
Most lawmakers displayed less-formed opinions of the crypto industry than they typically do of other sectors such as social media or banking. While testifying in Congress can often be uncomfortable for corporate bosses, some of the executives who participated in Wednesday’s hearing expected it to advance their cause.
“I think it went really, really well,” Circle Chief Executive
said after the hearing. “It was very comprehensive, not contentious.”
—Alexander Osipovich and Caitlin Ostroff contributed to this article.
Corrections & Amplifications
Alesia Haas is Coinbase’s chief financial officer. An earlier version of this article incorrectly said she was CEO. (Corrected on Dec. 8)
Write to Paul Kiernan at email@example.com
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