During a House Financial Services Committee hearing on digital assets, the chairman, U.S. Rep. Patrick McHenry, R-NC, said the U.S. is at a crossroads, and he hopes the country will take the opportunity to implement regulations that will encourage “freedom, innovation, [and] inclusion” while protecting consumers, rather than “surrender our leadership” and allow other countries to take the lead.
“We are at a critical moment for American dynamism. We can choose the side of financial freedom, innovation, inclusion, and American competitiveness and important consumer protections at the same time," the congressman said, according to a House Financial Services Committee news release. "Or we can let this moment pass us by and surrender our leadership of the global financial system to other countries. I hope we will choose the former.”
During the June 13 hearing, titled “The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem,” lawmakers discussed the Digital Asset Market Structure Discussion Draft and heard testimony from witnesses including Coy Garrison, an attorney and former counsel to SEC Commissioner Hester Peirce, and Thomas Sexton, the president and CEO of the National Futures Association.
The 162-page discussion draft includes amendments to the Securities Act of 1933 and the Commodity Exchange Act, which would add terms like "blockchain," "source code," "digital commodity custodian," and "digital asset issuer," according to a copy of the draft. The draft bill also lays out provisional requirements for digital exchanges, brokers, and dealers to register with the CFTC, and for "alternative traders" to register with the SEC.
McHenry said digital assets are no longer a new technology, noting that they are used across the globe, according to a transcript of his opening remarks. “America has always led technology invention and, if not invention, implementation,” McHenry said. “Today we are at risk of falling behind competitors around the globe.” He highlighted an “unprecedented joint effort” between his committee and the House Agriculture Committee in creating the discussion draft and emphasized the bipartisan nature of the legislation. He encouraged other lawmakers to provide feedback and input, saying he wants the committee to reconvene and “mark up some form of this legislation when we return from the July 4th recess.”
McHenry said legislators all agree that consumer protections are a critical aspect of digital asset regulations. “The draft bill would require trading platforms to comply with strict requirements regarding the segregation of customer assets, similar to most traditional intermediaries," he said. He also highlighted the disclosure requirements in the draft bill, including “the number of tokens in circulation, the concentration of assets held by affiliates, and much, much more.” He said the bill would improve the SEC’s ability to target bad actors and criminal activity in the crypto ecosystem.
The draft bill would provide a way for exchanges to register with the SEC or CFTC and would bring clarity to how digital assets should be classified, McHenry said. “And I would submit, the central part of this bill is this: a workable timeframe in a workable time period for assets, started as part of an investment contract, to transition to a digital commodity, if the network is functional and decentralized. I think that is the central piece of this legislation that our discussion should be focused on,” he said.
The hearing came a week after the SEC filed lawsuits against leading crypto exchanges Binance and Coinbase, accusing the companies of violating securities laws, the SEC said in a news release.
Binance responded to the SEC's lawsuit with a blog post, saying, "Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry."
Coinbase CEO Brian Armstrong also highlighted the need for regulatory clarity in the crypto industry, responding to the lawsuit against his company with a tweet that said Coinbase is "proud to represent the industry in court to finally get some clarity around crypto rules."
