US House Crypto Hearing Dives Deep Into Legal Challenges & Problems Industry is Facing
It seems that cryptocurrencies are complicating existing regulatory frameworks, according to witnesses at a public hearing on July the 18th. The public hearing was titled: “Cryptocurrencies: Oversight of New Assets in the Digital Age.”
The main intention was to discuss the promise of digital assets and all the regulatory challenges that face this new asset class. The hearing was chaired by the Texas representative Michael Conaway, Gary Gensler, Andreessen Horowitz, Scott Kupor, Daniel Gorfine, Joshua Fairfield, Amber Baldet, and Lowell Ness.
Gensler and Fairfield said that if a token is considered as pre-functional, for example during an Initial Coin Offering (ICO), then the sale should be considered as an investment contract. That means that the crypto should be regulated by the Securities and Exchange Commission (SEC).
But as the crypto space is changing at all times, these tokens may cease to be securities if they are used in a decentralized network as a utility token. This is something that happened to Ethereum. The SEC did not consider Ethereum and Bitcoin as securities. But they explained that at the very beginning Ethereum (ETH) was a security.
Gorfine stated that the Commodity Futures Trading Commission (CFTC), does not exercise direct oversight of the underlying commodity markets themselves. Instead, it is important to mention that the institution regulates derivatives including the futures or swaps markets.
At the moment, the market has no regulation and it is ‘at best a wild west,’ according to Gensler. It seems that the CFTC needs more authority and resources to deal with this situation of virtual currencies.
Furthermore, Ness warned that over-regulations on the market would impede the crypto space to keep growing and innovating.
A very important thing is the fact that the SEC requires that the beneficial ownership of an asset can be determined at any given time. Of course, it is not so easy to achieve that in a frictionless way.
Finally, committee members said that Bitcoin and other virtual currencies could be used for illegal activities. But Kupor explained that Bitcoin is ‘law enforcement’s best friend.’ With specialized equipment it will be possible to achieve an increased degree of traceability.