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Please keep in mind that the below format is not how articles are usually dispensed. These are the results of the notes and thoughts that I took down while listening to the Congressional hearing. So, it’s not super-organized in terms of topic sorting, but it’s readable and includes what I feel were the most important interactions of the hearing.
I came into the Congressional live stream a bit late into the actual telecast. At the point that I came in at (10:56 a.m.), Congressman Ellison asked ‘Dr. Brummer’ about the ‘risks of investing’. Specifically, he asked if it was a good idea whether people should invest in cryptocurrencies if they aren’t knowledgeable in it. And if they aren’t informed, what are the risks and what can they do to arm themselves?
As you can predict, the response was the typical, ‘It’s not wise to invest if you don’t have the knowledge of how to trade.’
The other questions were relatively inconsequential when considering the full breadth of what was going on.
[A few minutes later]
Congressman asks about the difference between ‘regular’ cryptocurrencies, which he calls “digital commodities” and tokens that are based on something that doesn’t yet exist (ICOs). This issue was answered by Mr. Van Valkenburgh where he verified that ICOs are securities.
The next Congresswoman asked a question about individuals using cryptocurrencies to fund Neo-Nazi campaigns as well as for sex trafficking. The woman asked the question of what the exchanges were doing to prevent people from using cryptocurrency for subversive purposes such as these.
Of course the response was that this is taken extremely seriously and that their adherence to KYC/AML laws helps to disseminate these individuals if they do exist. They pretty much said, ‘If we see it, we’ll report it and we make sure we do our homework and double check’.
One thing that was interesting was the mention by the respondent, ‘Mr. Lempres’ regarding ‘blockchain analytic tools’ that he claims is used to track ‘suspicious activity’ and ‘bad actors’. I’m not sure what that means, but that’s definitely something interesting to note.
Congressman Maloney said that she was working on a bill to regulate cryptocurrency investments. She seemed to definitely be thoroughly against the idea of cryptocurrencies existing. She also asked, ‘Do you think the definition of a ‘security’ encompasses all virtual currencies.”
This was answered in the negative by Dr. Brummer. They once again cited the Howey Test in this instance.
The Congresswoman then asked if the SEC’s authority would need to be expanded in order to adequately regulate all cryptocurrencies that are being used as an investment tool.
Subsequent congressmen hammered the question of ‘How do we determine what these ICOs are and how they should be regulated?’ — This sort of follows in with the theme that no one really understands how to move forward with this technology. It appears that the Congressmen, overall, are fairly ambivalent regarding the technology.
Some are bearish, some are bullish, some seemed unconcerned, some thought it was a grave issue that needed to be resolved immediately. Some believed that the market was super dangerous for investments and needed harsh regulations. Others stated that they believed in blockchain technology overall and that they didn’t want to stifle the industry in any way through regulation at all and that there was a true potential for it to change the world that everyone is living in today.
Many of the questions that were asked of the panel members were fairly redundant in nature, especially when questioning the ICO market. However, it is notable that when one of the Congressmen brought up the fact that ICOs raised nearly $4 billion, there was an audible gasp from those that I suppose were not aware of this fact.
It’s approximately 11:31 a.m. EST (GMT-4; NYC) at the time that I’m writing this, and the sentiment toward cryptocurrency overall seems ambivalent, but the sentiment toward ICOs appear to be somewhat negative. A lot of negative facts were brought out against ICOs and the questions were more geared toward asking how the government should go about attempting to regulate.
They compared the whitepaper to a ‘private placement memorandum’, noting that a whitepaper is significantly weaker. The panel also brought up the ‘BitLicense’.
According to Coinbase, they have ’40 licenses in 38 states’.
According to other questions asked by the members of Congress on the panel, FinCEN is definitely heavily involved.
One big question was, “Is there some great social purpose that’s been fulfilled through cryptocurrency that cannot otherwise be fulfilled?”
Unfortunately, the panel failed to provide an adequate response to the Congressman about that question. He was clearly someone that was firmly against cryptocurrencies and consistently referred to the potential of cryptocurrency to ‘fund terrorist operations’.
Many of the following questions and responses were primarily about what the best method is that someone could use to dissect cryptocurrency investments.
A huge concern was the influx of new investors that are losing their money in cryptocurrencies, specifically ICOs that turn out to be bullshit.
One unique response that I heard during the Congressional hearing was the theory that regulation that is too strict or overreaching will simply push cryptos to explore other markets. This is a powerful statement for these Congressional folks because they don’t want to be on the wrong side of history as politicians. For example, they don’t want to advocate for harsh regulation, force it overseas to other jurisdictions and then, in the event that cryptocurrency does blow up and get wildly successful, they go down as one of the Congressmen responsible for driving the flight of the business from the U.S. economy.
*Given the current Republican (American conservatives) control of the Senate and House as well as the Republican president that’s currently in office, there is a greater focus on ‘buy America’ currently, which is part of the party’s platform. Thus, an appeal to Congressmen to exercise some level of restraint before imposing strict or draconian regulations on the sphere.
Conclusion and Overview
I personally don’t think that there’s anything new that came out of the meeting that should alarm investors if they’ve been paying attention to the space. The mood of the meeting appeared to be anxiety. A lot of Congressmen seemed to want to genuinely glean more information but the panel, but were met with insufficient responses. A big part of the reason for this was that the format of the hearing only provided 5 minutes of Q&A for each Congressperson with questions regarding the hearing.
There was definitely a decent collective of Congress people that seemed to be pretty against cryptos. The primary concern, however, appeared to be finding out what, if anything, could be done to ensure that investors weren’t being senselessly finessed by sharks out in the industry that are operating under impunity because of the lack of regulation.
Here are some certain things that you can count on from the meeting.
· The U.S. government still has no real concrete strategy for how to regulate crypto, how they should do it and to what extent. As typical in democracies, uncertainty almost always breeds stagnation, so this could bode heavily in crypto’s favor in the short-term.
· ICOs have a target on their back. Plain and simple. And this goes for any and all ICOs. Everyone is on the same boat with saying that they must be regulated. However, once again, the big question was, ‘How?’
· It doesn’t seem like Congress wants to entirely remove the ability of ‘regular non-financial, commercial investors’ to invest in cryptocurrency. This is a positive.
In my humble opinion, cryptos are still a bit of a ways away from receiving any impactful legislation that gets passed this year. It looks like at this point, the U.S. government is sort of observing the sphere to get a better gist of where it’s heading before they try to meddle with it. A lot of Congress people in general seemed to be completely open to the possibility that cryptocurrencies may just really blow up in an unprecendeted level in the future. And, if that’s the case, they want to make sure that America doesn’t cut itself out from reaping the potential rewards of this system if this vision does come to fruition.