The Senate Committee on Banking, Housing, and Urban Affairs Demonstrates a Commitment to Providing Clear Crypto Market Regulations. Dylan Unruh, Dartmouth College.

On July 9, the Senate Committee on Banking, Housing, and Urban Affairs hosted a panel on cryptocurrency market structure. In a discussion of providing clarity, the shared sentiment that uncertainty is putting America at a disadvantage on the global stage was glaring. Almost every senator affirmed that the previous ambiguity that has historically characterized crypto regulation was driving away innovation to countries such as Singapore and the UAE. From this central tenet, three major topics emerged: the role of Congress in regulating crypto, the prevalence of illicit activity, and the conflicts of interest.

Congress’s Role 

There was no denial from the committee that the current securities laws and the Howey Test did not properly fit cryptocurrency. Thus, the majority of the questions stemmed from the desire to establish clearer regulations to promote innovation while protecting consumers and investors from fraud. Panelist Timothy Massad offered a well-received suggestion that Congress’ crypto market structure should prioritize a principles-based approach rather than focus on specific cases and definitions. Creating a regulatory taxonomy for digital assets is a complicated, nuanced process that should be left to the SEC and CFTC, and by creating a jurisdictional framework for joint-regulation, Congress allows the SEC and CFTC to focus on understanding and regulating cryptocurrency on a case-by-case basis. One objection to Massad came from Senator Bernie Moreno (R-OH) who believed the SEC did not have the technical expertise to properly regulate. Senator Bill Hagerty (R-TN) also disputed giving so much authority to the SEC and CFTC as the action assumes that the agencies would act in good faith. Both of these grievances stemmed from the SEC’s previous regulation-through-enforcement approach to cryptocurrency that often lacked neither rhyme nor reason. 

Illicit Activity 

Chainalysis’ CEO, Jonathan Levin, handled questions regarding crypto’s use for illicit activity such as money laundering and terrorist financing. Levin made two important points: illicit activity makes up less than 1% of all crypto activity and public blockchains provide a much easier environment for tracking and apprehending bad actors. However, a few senators seemed skeptical of Levin’s statements, particularly Senator Elizabeth Warren (D-MA) who cited North Korea’s host of heists which have acquired more than $3 billion. Levin pointed out that bad actors are not limited to crypto and often use cash or gold as well.

Cryptocurrency often suffers from an external outsized focus on bad acting that has resulted from the regulatory deficit. The committee generally agreed that regulation as well as education, both for regulators and the general public, were the essential steps forward to protect consumers, investors, and national interests. 

The Trump Family 

The Democratic committee members and panelist Richard Painter were outspoken critics of President Trump and his family’s involvement in cryptocurrency. Painter repeatedly brought attention to the Trump memecoin which has dropped about 70% despite enriching the Trump family by hundreds of millions of dollars. Senator Warren stated that any crypto market regulation cannot ignore the president and his family’s involvement. Interestingly, Painter took this forward by demanding that all of Congress and the President divest from any crypto interests. Painter attacked the general exemption of Congresspeople and the President to 18 U.S.C. § 208 which bars federal employees from personally participating in a government matter that would affect their financial interests. So, while Secretary of the Treasury Scott Bessent may have to divest from his crypto holdings, President Trump or Senator Lummis would not. This creates an undeniable conflict of interest as crypto market regulations are sure to increase the value of the broader crypto market as investors, retailers, and developers receive clear instructions and safety guarantees fostering innovation and growth.

Conclusion 

A crypto market structure is necessary; however, the current CLARITY Act is far from perfect and risks creating more confusion by introducing ambiguous terms and concepts. Furthermore, there are regulatory gaps that must be addressed such as who will regulate crypto spot markets and how to ensure and regulate decentralization. Regardless, the hearing was a positive step for the crypto industry as the committee affirmed a committee to bring clarity to the markets and recognized that globally the US trailed in regulation. A desire to stimulate innovation and protect market participants was shared. The question remains: how to best do that?