The role of cryptocurrencies was thrust into the spotlight during a hearing between Congress and the US Securities and Exchange Commission. The US House of Representatives Committee on Appropriations held a hearing with the Wall Street regulator on April 26, and they explored regulating cryptocurrencies in what they still seem to believe exist in a Wild West environment. SEC Chairman Jay Clayton was looked to as an authority on the topic of cryptocurrencies in what was his maiden testimony before this specific committee.
Congressman Chris Stewart (R-UT) told how his son invested $17 in a digital currency that he opted not to name but acknowledged that his son has a greater net worth than he does at the moment. But without proper regulation, “people don’t have the information they need to make good decisions,” he said, looking to Chairman Clayton for answers.
Bitcoin Not a Security, ICOs Are Not Transparent
Chairman Clayton described a “complicated area,” one in which he divides between bitcoin as a currency and ICOs. Bitcoin, Chairman Clayton said, has “been determined by most people to not be a security.”
Tokens used to finance projects, such as tokens that are issued in the fundraising process of an ICO, however, are different. “There are none that I’ve seen that aren’t securities,” said Clayton,” adding: “To the extent something is a security, we should regulate it as a security.”
It’s these new tokens that appear to be the focus for regulators at the moment, and the SEC is waiting for the issuing companies to step up. Chairman Clayton pointed out that “securities regulations are disclosure-based,” adding that “people should follow those and provide the information that [the agency] requires.” When asked by Rep. Stewart if issuing startups are transparent about how they present themselves, Chairman Clayton didn’t hold back, saying “no.”
Chairman Clayton recognized the “economic utility” and “great promise” that cryptocurrencies bring to bear. But policymakers are still torn on how the market should be regulated.
For instance, ICOs have raised a whopping $6.3 billion in Q1 2018 alone, and Chairman Clayton says the growth has occurred “without the usual respect for the law that you would expect to see in the financial markets.” The SEC, he believes, should have jurisdiction over the newly issued tokens.
As for bitcoin, which is used as a payment method, that’s outside of the SEC’s purview.
“Our laws didn’t anticipate [cryptocurrencies.] Our laws anticipated sovereign-backed currencies. These currencies are not sovereign-backed. With a sovereign-backed currency, I would argue that the need for regulation to give people comfort is less than it is for something that is not sovereign-backed,” said SEC Chairman Clayton.
While Rep. Stewart appears to want greater oversight of the cryptocurrency market, he also wants to avoid a knee-jerk reaction. “Many times when we legislate in a moment of crisis, we overkill,” he said, pointing to Dodd Frank and the Patriot Act as examples.
“I would like us to lean into this rather than wait for something that gets someone’s attention and then draws upon Congress and others to respond to it when we’re really not prepared,” concluded Rep. Stewart.
Chairman Clayton agreed, and said “leaning in” is precisely what the SEC has been doing.