WASHINGTON—Cryptocurrency chief executives appeared before Congress Wednesday to argue that their technologies hold promise for the future, as lawmakers and regulators wrestle with how to bring the more-than-$2 trillion market under government oversight.
The House Financial Services Committee, led by Rep. Maxine Waters (D., Calif.), called the hearing in hopes of improving lawmakers’ understanding of crypto assets and how the sector fits into existing regulations. With millions of Americans estimated to have invested in crypto, many experts say the asset class needs more legal clarity, which Congress could provide.
Senior executives from stablecoin issuer Circle Internet Financial Ltd., crypto exchanges Coinbase Global Inc. and FTX Trading Ltd., bitcoin-mining firm Bitfury Group Ltd., cryptocurrency-payments system Stellar Development Foundation and blockchain firm Paxos Trust Co. are testifying. The executives aim to tout what supporters believe to be the potential upsides of crypto and blockchain technology while playing down the risks highlighted by many policy makers and consumer-protection advocates.
“The industry has the potential to improve a lot of people’s lives,” FTX Chief Executive Sam Bankman-Fried told lawmakers. He noted the existing system leaves many without access to banking. “Cryptocurrencies do provide a potential way to address a number of these issues.”
Ms. Waters, however, raised concerns about the crypto industry’s lack of regulation. “Currently, cryptocurrency markets have no overarching or centralized regulatory framework, leaving investments in the digital-asset space vulnerable to fraud, manipulation and abuse,” she said Wednesday.
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As the crypto industry builds out its lobbying presence in Washington, it has found more allies in the GOP than among Democrats. The top Republican on the financial-services committee, Rep. Patrick McHenry of North Carolina, echoed industry lobbyists’ warning Wednesday that excessive regulation of cryptocurrency could push technological innovation to other countries, leaving the U.S. at a disadvantage.
“We don’t need knee-jerk reactions by lawmakers to regulate out of fear of the unknown rather than seeking to understand,” he said. “That fear of the unknown and the move to regulate before understanding will only stifle American ingenuity and put us at a competitive disadvantage”
The executives argued that cryptocurrencies don’t fit neatly within the existing structure of U.S. financial regulations and that lawmakers should consider writing tailor-made legislation for their industry.
“Because of their nascent stage of development and unique underlying technology, digital assets trade in markets that are fundamentally different from traditional financial markets,” Coinbase Chief Financial Officer Alesia Haas said in her testimony. “As a result, existing regulatory regimes often do not accommodate this new technology.”
Crypto supporters say that the technology can facilitate faster and cheaper transactions than traditional payment networks and that it has the potential to foster innovation and financial inclusion.
“When you look at the number of people who are underbanked or unbanked, both in the United States and globally, it’s indicative of a system that does not work for everyone,” Mr. Bankman-Fried said. “This is a product of the intermediation involved, it’s a product of how the larger institutions have evolved, and it’s a product of payments infrastructure that is difficult and clunky enough to use that it just does not work for most people.”
Five percent of American adults didn’t have a bank account in 2020, according to the Federal Reserve.
Lawmakers including Rep. Ritchie Torres (D., N.Y.) asked about the potential for crypto to help immigrants send remittances between countries, a process that can be slow and costly through banks or money-transfer companies. Supporters often tout that as a use for cryptocurrency.
But such transactions have yet to become common. In theory, crypto remittances would be fast and cheap, but there aren’t enough outlets offering the service to give it a competitive presence. Also, safely using crypto requires a degree of technological savvy, and mistakes can be irreversible.
With a few exceptions, lawmakers displayed less-formed views toward crypto than toward other sectors such as social media or banking. One of the most confrontational exchanges took place between Rep. Brad Sherman (D., Calif.) and Ms. Haas over the amount of Coinbase’s transaction fees.
“If I take $100 on your exchange, buy some bitcoin, and then a couple days later, say bitcoin happens to be selling at the exact same price, I sell it. It’s my understanding that I get $94.02 back. Am I wrong?” Mr. Sherman asked.
When Ms. Haas started to respond that Coinbase has multiple products and that the answer would depend, Mr. Sherman demanded a yes-or-no answer.
“There is a product where you’d be right,” the Coinbase executive said.
Policy makers worry that the rapid growth of crypto markets poses a threat to financial stability, that the sector is rife with fraud, that bitcoin mining wastes vast amounts of electricity and that criminals are using cryptocurrencies to evade taxes and circumvent anti-money-laundering laws.
Oversight of crypto markets is spotty in the U.S., where financial regulation is split among federal and state agencies.
The Securities and Exchange Commission in recent years has shut down dozens of so-called initial coin offerings for selling unregistered securities. Under Chairman Gary Gensler, who was nominated this year by President Biden, the agency has sought to persuade trading and lending platforms, such as Coinbase, to register as securities exchanges.
But the two largest cryptocurrencies by market cap—bitcoin and ethereum—are considered by many experts to be commodities rather than securities, meaning they likely fall outside the SEC’s jurisdiction. While the Commodity Futures Trading Commission regulates derivatives markets for commodities, its authority is more limited when it comes to the underlying instruments.
“There are gaps in our system,” Mr. Gensler said Tuesday at The Wall Street Journal CEO Council Summit.
—Alexander Osipovich and Caitlin Ostroff contributed to this article.
Corrections & Amplifications
Alesia Haas is Coinbase’s Chief Financial Officer. An earlier version of this article incorrectly said that she was CEO. (Corrected on Dec. 8)
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