Will Congress Be Able to Grasp Crypto?
Written: December 10, 2021
The United States House of Representatives Financial Services Committee held its first hearing on digital assets on Wednesday, December 8, 2021, more than 10 years after the birth of crypto. The House is not known for speed. The House Oversight Committee released a report this week saying the pharmaceutical industry relies on drug-pricing practices which are “unsustainable, unjustified and unfair”. This is something well known and widely written about for a very long time. The committee reached its findings after a nearly three-year investigation.
Wednesday’s crypto hearing was titled, “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States”. The hearing included the full committee of 54 members plus crypto executives including Jeremy Allaire, CEO of Circle, Samuel Bankman-Fried, CEO of FTX, Brian Brooks, CEO of Bitfury Group, Charles Cascarilla, CEO of Paxos Trust Company, Denelle Dixon, CEO of Stellar Development Foundation, and Alesia Jeanne Haas, CEO of Coinbase Inc.
The hearing was chaired by Maxine Waters, 83 years old. I read Wikipedia to look for her education or experience in financial services or technology. I could find none. The most prominent information about here was the watchdog group Citizens for Responsibility and Ethics in Washington named Waters to its list of corrupt members of Congress in its 2005, 2006, 2009 and 2011 reports. Wikipedia provided a lot of details behind numerous corruption charges. I am sure Ms. Waters has virtues, but it is clear she was appointed to chair the committee based on seniority, not experience or qualifications. She was appointed by Speaker Nancy Pelosi, 81 years old with approval by the #2 and #3 leaders of the House, Steny Hoyer, 82 years old and James Clyburn, 81 years old. Does older mean wiser? My concern is bipartisan. Republican Senator Chuck Grassley, 88 years old, has announced his plans to run for another six-year term.
The hearing lasted four hours and 50 minutes. I watched it all. Parts of it were painful. If you are interested in watching any of it, you can see it here. After 5-minute opening statements by the Chairwoman and the Ranking Member, each of the seven CEOs gave their 5-minute testimony. Following these, each of the 54 committee members got 5 minutes to ask questions. The CEO testimonies were exceptionally well organized, clear, and understandable, except by quite a few of the committee members. Each committee member started out with something like “Thank you Madame Chairwoman and thank you Mr. Ranking Member and thank you to the CEOs for coming to testify. Thank you, Madame Chairwoman, for having this important committee hearing.” Multiply these platitudes times 54.
A dozen or so of the committee members, both Republicans and Democrats, were quite impressive. They had obviously done their homework and had a solid grasp on what crypto is all about, how it can benefit America, what regulation is needed, and how to prevent the digital assets industry from moving to other countries which have already created regulatory environments enabling crypto to operate effectively. Their questions were focused and relevant. About half of the remaining 40 or so committee members added little value. The other half demonstrated a pathetic level of understanding. Some asked no questions, just rambled showing how little they knew. A few actually ridiculed crypto.
The major theme of the questions was about U.S. federal regulatory supervision. The Chairwoman’s committee report said crypto is an unregulated industry. That is a laughable statement. Sam Bankman-Fried, the 29-year-old physics grad form MIT, is the founder and CEO of FTX, a cryptocurrency exchange. His net worth is $23 billion. Sam described how his company receives regulation of the highest standards, including by the U.S. Commodity Futures Trading Commission (CFTC), the SEC, the U.S. Department of Treasury, as well as stringent supervision by other global and state regulators. All the CEOs acknowledged and embraced the need to fill the gaps in regulation. They all strongly suggested it would be best to operate under one, federal, unified regulatory regime. The sharper committee members, of both parties, strongly agreed. The issues are clearly not partisan. It is a matter of understanding.
Another area of focus from committee members was the transfer of money using blockchain technology. Denelle Dixon, CEO of Stellar Development Foundation, explained how the Stellar crypto platform has pioneered using a more advanced approach for millions of people in the U.S. who send money to family members in other countries. A person in the U.S. can get a digital wallet from Stellar and transfer money from a bank account into it. Alternatively, they can take cash to a MoneyGram location and have them put the money into a digital wallet. The money is converted to USD Stablecoins. These are crypto coins tied to the U.S. dollar. The Stablecoins are transferred instantly across the blockchain to the family member in another country, such as Mexico. The recipient can take their mobile phone to a MoneyGram location in Mexico which can then convert the Stablecoins to pesos. The process is far superior to the current cross-border payment system, which is slow, costly, and fragmented, a problem acknowledged not just by blockchain networks but across the international spectrum from the G20 to the World Bank. Ms. Dixon said 800 million people, about one in nine globally are supported by funds sent home by migrant workers.
Many other examples of how crypto is helping underserved and unbanked individuals were described. The CEOs explained how moving money today uses a series of processes taking days and often carrying large fees. They explained how blockchain technology and crypto enables moving money at the speed of the Internet. Some committee members defended the status quo. Maybe they don’t know 511 banks failed between 2009 and 2020. Maybe they don’t know there were 89,476 bank fraud incidents in 2020 up 52.4% from 2019. Blockchain technology has the potential to not only be more secure but to be completely transparent. There are a few gaps in regulation which need to be addressed. It is clear leadership on the issue is not going to come from the top. I hope the handful of enlightened bipartisan committee members can win over the benighted members and put a fire under the committee to get it to move faster.