On December 8th the U.S. House Committee on Financial Services held a full committee hearing about crypto and other digital assets. Earlier this year the Chairwoman of the Committee Rep. Waters had created a Democrat-only working group on the topic. Without going too much into detail naturally, a single part having a working group by themselves can easier lead to slanted results and recommendations. This hearing had 6 CEOs of "crypto companies" testify about what their company was currently doing and where they thought it was heading. Since this was a long and pretty in-depth hearing I will be breaking it into smaller parts starting with this first one. This will cover the first part of the hearing before the members ask questions.
In Chairwoman Waters opening statement she made a few basic errors in her statement that automatically made me wonder what her briefing was on this topic. At the end of her statement, she pointed out, what has seemed to be a new cry against crypto, the energy consumption that mining for Proof of Work coins has. In all her opening statement really highlighted how more research and factfinding needed to be done to understand crypto and see what it was doing to our markets.
Ranking Member Rep. McHenry in his first sentence stated that 2021 was the year of Cryptocurrency due to its growth and public awareness. While the Chairwomen was big on the crypto markets are unregulated the Ranking Member was steadfast that the regulations are already here saying that they might be cluckly, out of date but that they are here. The goal he said for the hearing would be the listen, learn, and ask questions. Rep. McHenry was pretty well versed in what he was talking about even mentioning how the firms testifying before the committee were the onramps for people branching out to Web3. My favorite thing he hit at was that while some bad actors may exist in the space cash is also used for nefarious purposes something many of us have claimed for a long time!
The witness list consisted of people most of us are familiar with or at least their companies
- Jeremy Allaire of Circle
- Samuel Bankman-Fried of FTX
- Brian Brooks of Bitfury Group
- Charles Cascarilla of Paxos Trust Company
- Denelle Dixon of Stellar Development Foundation
- Alesia Jeanne Hass of Coinbase and Coinbase Global
Each person was given 5 minutes for their opening statement to the committee. To try and make this shorter as opening statements can become pretty repetitive I am going to just hit on the highlights of the opening statements!
- Jeremy Allaire
- Money is becoming a core feature of the internet and the US should be aggressive in promoting the dollar as the primary currency of the internet and leverage that
- Circle issues the USDC which brings the dollar to the internet without the extreme volatility of other cryptos and is paving the way for digital dollars to be the leading currency.
- USDC is now being used as a regular payment option for businesses and is no longer exclusively used to settle crypto trades.
- Circle has built and created a framework to protect the dollar and has worked with government bodies so that it does not appear to be an unregulated asset and the US banking system holds in cash and short duration US government treasures the backing of its crypto and has consistently released audits about its standing.
- Samuel Bankman-Fried
- FTX was founded in 2018 and is the second or third largest crypto exchange globally depending on what metrics you use
- While the payments side of crypto and blockchain can definitely help people out there are other areas as well like remittances, the global financial system does not do this well and thus impacts and hurt those who need it most
- The current system shows that it does not work for everyone and that change is needed and cryptocurrency provides a possible solution to these issues
- FTX provides market data for free which is not something that traditional exchanges are able to utilize. Users and institutions have access to the same market data
- FTX's risk engine is 24/7 where traditional finance allows risk to build-up
- The industry is regulated in a number of ways but some parts could still have some regulation
- Brain Brooks
- Bitfury provides a suite of infrastructure products and services for various aspects of the cryptocurrency and Web 3 ecosystem
- Bitfury has created 8 generations of miners but also invested and created mining techniques that lower the energy consumption and has also created blockchain analysis tools as well
- There are 3 issues at hand
- A national policy agenda that decides if crypto should be brought into the system or not (only banks issuing stablecoins but no stablecoin issuers getting bank charters)
- Americans need to know what the policy is for a decentralized web 3 internet
- Crypto policy should take into account the risk already present in today's system that decentralization solves (banks get fined a lot so shouldn't we look at the decentralized nature of some finance)
- Proceeds to point out how major US companies are going outside the US to offer crypto products in Europe and Canada
- Charles Cascarilla
- Paxos is a regulated institution and has clients including Mastercard, Paypal, Credit Suisse, etc.
- Also has Pax dollar that is backed by 1 US dollar that is traceable and always able to be transferred
- The current system is expensive and slow esp. when transferring abroad and has certain hours where transfers are available
- Has been a part of SEC pilot programs to make asset settlement not take 3 days
- Volunteered for oversite from Federal Regulators even though it does not have to be
- If an overbearing regulator mentality is taken the people investing and creating these projects will move to areas that are much more friendly to the industry
- Denelle Dixon
- Stellar was designed for asset issuance making it possible to create and trade any assets and has asset regulator tools built it
- Over the last few years, individuals have utilized the blockchain to build out several use cases to solve issues that they have faced
- Despite the headlines lending, trading and borrowing are not the only things going on with blockchain and cryptocurrency other use cases are out there and being used. MoneyGram is using the Stellar Blockchain to build its network to allow for money to be sent faster and in various other currencies.
- In a recent G-20 report 5 Stellar ecosystem companies were named for their innovative solutions
- The President Working Group issuance on Stablecoins goes way too far in the way it believes Stabelcoins should be issued
- We can look around the world to see where governments and regulators have gotten in the way and stopped progress in fixing issues regular people face the blockchain can address
- Alesia Jeanne Hass
- Coinbases goal is to increase economic freedom for the world
- Coinbase serves 73 million people and 10,000 institutions and stores roughly 12.5% of the cryptocurrency supply
- Nearly 50% of transacting customers are doing something else rather than buying and selling crypto showing it has moved to its utility phase
- Currently, there are more than 220 million crypto holders globally and more than 16% of Americans have invested in, traded, or received cryptocurrency
- Coinbase knows that some regulation is needed and that is why they have proposed their Digitale Asset Proposal with a 4 pillar solution
- Digital assets are specifically recognized in a category of their own
- Single federal regulator
- 3 goals to make sure holders are empowered and protected
- enhanced transparency with appropriate disclosure requirements
- protect against fraud and market manipulation
- promote efficiency and strengthen resiliency
- regulatory solutions promote interoperability and free and fair competition
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