US cryptocurrency leaders stood in front of Congress this week asking for urgency and clarity around cryptocurrency regulations.
In a roundtable discussion, hosted by Rep. Warren Davidson, many assumed that cryptocurrency advocates would be advocating to avoid regulation, but quite the opposite was true.
“We all want fair and orderly markets. We all want the same things regulators do,” said Mike Lempres, chief legal and risk officer at cryptocurrency exchange Coinbase. “It doesn’t have to be done the same way it was done in the past, and we need to be open to that.”
The 45 participants that represented several companies including Fidelity, Coinbase, State Street, NASDAQ, Circle, Andreseen Horowitz and Blockchain, in addition to the U.S. Chamber of Commerce had one common complaint - the laws being applied to the emerging cryptocurrency market and technology are outdated.
SEC Chairman Jay Clayton upheld the legitimacy of the traditional regulatory approach in June.
“We are not going to do any violence to the traditional definition of a security that has worked for a long time. We’ve been doing this a long time. There’s no need to change the definition.”
Chairman Clayton was referencing a 1946 Supreme Court ruling which defines a security as an investment of money in a common enterprise, which the investors expect profits from the efforts of others.
Cryptocurrency advocates argue that digital currencies, tokens, and ICO's fall in a gray area which requires further distinction and definition.
These advocates argue that the lack of clarity creates hesitation and fear of the innovations and movements of companies.
Chia Network's Ryan Singer simplified the primary questions.
“We’re trying to understand, can we have a basic definition of what’s decentralized enough? What’s functional enough? What’s the point where we can be another player in the ecosystem and not necessarily an issuer of an investment opportunity?”
One of the chief concerns among the panelists is that since cryptocurrencies aren't backed by governments, founders of these currencies can relocate to countries more receptive with laxer laws, which could leave the US behind.
ConsenSys, a blockchain development company, lawyer Joyce Lai said:
“The competition around the world is real. But I think that there is still time and opportunity for the US to be a real leader here.”
Kraken CEO Jesse Powell added:
“Foreign companies are able to out-raise their U.S. competitors and often whoever raises the most money is who wins. Not only are US companies not able to raise enough to compete globally, US investors are not able to invest in these global companies.”
Director of global regulations at Ripple, Ryan Zagone confirmed global interest and adoption of cryptocurrencies is rising:
“We see recognition globally of that blockchain and crypto assets will play a pivotal role in the next generation of finance and our national economies. And there are countries racing to provide regulatory certainty so they can be the winner in this race. They can essentially take a stake as the global capital of finance, which is now in the US moving elsewhere. We’re seeing national, holistic frameworks in other countries designed to drive the adoption of this tech. You can look at the UK, Singapore, Japan… They’re winning because they have one framework that covers this entire technology… Certainty is that prerequisite for adoption, and it’s enabling much faster growth.”
Professor at Cardozo Law School, Aaron Wright, said entrepreneurs are wanting more assets represented as tokens. That with the impending shift to a digital economy, regulations will need to accommodate existing technologies as well as future technologies.
“What we’ve seen today, particularly in the early wave of token sales, is an effort in order to treat many tokens as securities. If we do that, and if the classification of tokens are deemed to be securities across the board, it’s going to be a massive expansion of power by the financial services industry. More and more assets that could be deemed as consumer goods will be required to be purchased through financial services companies and other regulated entities. That is something that should be deeply concerning.”
Representative Darren Soto offered an approach:
“I’m sensing we may need an entirely new category that treats this like a new asset, so that we’re not trying to squeeze a square peg into a round hole. There needs to be some streamlining based on the definition of digital assets.”
Representative Davidson is intending to introduce a related bill this fall.