Financial experts told the Senate Banking, Housing and Urban Affairs Committee that the years with cryptocurrency have provided ample evidence of the “dire harm” it inflicts throughout society.
The committee held the “Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets,” hearing on Feb. 14, with committee Chair Sen. Sherrod Brown (D-Ohio) moderating and leading questions of the three witnesses: Lee Reiners, Policy Director, Duke Financial Economics Center; Professor Linda Jeng, Visiting Scholar On Financial Technology, Adjunct Professor Of Law, Georgetown Institute of International Economic Law; and Professor Yesha Yadav, Vanderbilt University Law School.
Brown said during the 2022 Super Bowl, the cryptocurrency industry spent a $54 million on ads "promising untold riches."
“Of course, it didn't tell us about the high seas, the risk of loss, the outright theft, that plagued the crypto industry,” he said.
Brown noted there were no ads for cryptocurrency in this year's Super Bowl. The crypto industry "imploded" in 2022, he said.
“After 14 years and countless claims that crypto represents the future of money, finance or something else, we have yet to see crypto’s killer use case,” Reiners said.
Beyond the billions lost through fraud and scams, Reiners said crypto undermines national security by facilitating terrorist financing and sanctions evasion. It undermines economic security by fueling the surge of ransomware attacks. The massive energy consumption required to "mine" cryptocurrency contributes to carbon emissions.
Americans who saw their cryptocurrency investment evaporate don’t care how its classified or who regulates it, Reiners said. They just want the same basic safeguards as the traditional financial system gives them.
Congress should establish cryptocurrencies as securities instead of as commodities, giving the SEC exclusive authority to regulate the industry, Reiners said.
The digital asset space is subject to a patchwork of regulatory requirements, Jeng said. Failing to act puts U.S. businesses and consumers at a competitive disadvantage, according to Jeng.
She proposed that Congress "create a security solution that can help to get a regulatory framework up and running quickly."
Yeng said the solutions should be "able to integrate quickly into the larger, comprehensive federal oversight system that we have today.
"What I'm proposing is the creation of a self-regulatory regime where cryptocurrency exchanges are tasked with oversight of the market as a whole," Yeng said.
Yeng urged the Senate to "not let the crisis go to waste" and instead learn from it to be able to better prevent "another FTX from happening." and I would
With FTX, millions of Americans found out that they are now unsecured creditors in that bankruptcy estate, unlike banks, which are FDIC insured, or traditional broker-dealers who are subject to specific insurance requirements, Reiners said.
Reiners recommended that Congress require crypto platforms to segregate customer assets from firm assets so customers retain access to their funds.
Sen. J.D. Vance (R-Ohio), said he owns cryptocurrency. He asked the witnesses about regulating crypto to protect consumers and the technology and innovation that he thought would happen.
Crypto needs open, interoperable standards to prevent monopolies of the future, Jeng said. Guardrails need to be set to allow for innovation but not let bad players take advantage of that openness, she said.
