If ever there was an all-star lineup of regulators, the June 6 hearing of the US House of Representatives Agriculture Committee on the regulation of digital assets likely would flaunt the record. The current chairman of the Commodity Futures Trading Commission (CFTC), Rostin Behnam, was joined by a former president and a former acting president of that agency, as well as a former commissioner. Coinbase’s chief legal officer, Paul Grewal, also appeared.
It was also a very long hearing, with Behnam speaking to himself and answering questions for more than two hours. The subject of the hearing was the bill drafted by committee chairman Glenn Thompson and House Financial Services Committee chairman Patrick McHenry.
“We hope to have a bipartisan and joint legislative proposal”Thompson said of the Republican bill in his keynote speech.
Democratic members of the committee showed some signs of reluctance about this hope. The 162-page bill was called “incredibly complex,” with Democrats saying they had not seen it until last week.
The project is just a draftThompson stressed, but it is very necessary:
“Current federal laws and regulations provide few rules of the road […]leading to complicated enforcement actions by regulators and creating more confusion in the industry and the marketplace.”
The bill should not affect existing legislation, Behnam told the commission, and does not displace existing authorities. Rather it fills gaps, especially in the spot market for non-securities digital assets. That loophole leads to “Joe Shmo in a vape shop selling cryptocurrencies”, as commission member Rick Crawford described what goes on in his hometown. Meanwhile, bankers avoid this emerging asset class as long as they remain unregulated.
The Thompson-McHenry bill would change the method of defining securities and commodities to one based on how the asset is traded—whether it is sourced from the issuer or purchased on an exchange—and the level of decentralization as an adjustment to the “regulatory regime based on principles” already in force. Securities are generally purchased from an issuer, and commodities are traded on the stock exchange.
The bill would also create new definitions of digital commodity dealers and dealers without altering the basic components of the market structure.
The regulatory vacuum affects 60% of the digital asset market, Behnam said. He was referring to the Bitcoin market (BTC) and ether (ETH). Behnam stated that ETH is a commodity, not a security, without hesitation, in contrast to Securities and Exchange Commission Chairman Gary Gensler, who refused to make that distinction at a House Financial Services Committee hearing. Representatives in April.
Behnam was less enthusiastic about the bill’s provisional registration period, which would give intermediaries a limited exemption from the law’s requirements while final rules were drafted. Behnam called it “handcuffing” regulators.
.@CongressmanGT: Today, the SEC filed a complaint against one of our witnesses, @Coinbase. While I will not & cannot speak to any specific allegations against the company, I do want to note this action is exactly why we are holding our hearing hear today.https://t.co/NF0tyLf0Du
— House Committee on Agriculture (@HouseAgGOP) June 6, 2023
.@CongressmanGT: Today the SEC filed a complaint against one of our witnesses, @Coinbase. While I will not and cannot speak about any specific allegations against the company, I do want to point out that this action is exactly why we are holding our hearing today.
Authorizing the CFTC to fill the regulatory gap in digital asset regulation would give the agency a considerably broader mandate and would cost money. The bill does not include a funding mechanism, as many Democratic committee members have pointed out, and the House Appropriations Committee has proposed cutting funding to the CFTC.
Behnam said the CFTC’s current budget is $360 million, while for the next fiscal year it requested $410 million, and the Appropriations Committee suggests $345 million. If that budget cut occurs, the agency will have to cut staff, Behnam said.
With the digital asset regulation bill, the CFTC would need an additional $120 million over three years. The extra money would pay for three regulatory kits and new hardware and software. Standards development would take up to four years.
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