Crypto Advocates Recommend Legislation to Encourage Innovation
Commentary by Gage Raju-Salicki
Before the House Financial Services Subcommittee on Digital Assets, Financial Technology and Artificial Intelligence, witnesses testified on the transformative potential of digital assets and blockchain technology, criticized previous policies for stifling innovation and recommended legislation to strengthen the US digital asset ecosystem. (See Committee Memorandum.)
Subcommittee Chair Bryan Steil said that digital assets present a significant opportunity to modernize financial infrastructure, strengthen the dollar's global dominance and improve payment efficiency. He noted recent actions, including: (i) President Trump's EO on digital assets, (ii) the SEC's repeal of SAB 121 and (iii) the FDIC's statement of reconsideration on crypto policies.
The following witnesses, among others, testified:
- Jonathan Jachym, Global Head of Policy and Government Relations at Kraken, a cryptocurrency exchange, said that Congress must act to establish a clear regulatory framework for digital asset intermediaries. He emphasized that "the time has come for Congress to pass market structure legislation to ensure the U.S. remains at the forefront of innovation." He highlighted that the Kraken exchange holds over $42.8 billion in client assets and pioneered a Proof of Reserves process. He criticized past regulatory uncertainty, calling for "an end to the regulation-by-enforcement approach" and urged lawmakers to follow global examples like the EU's MiCA framework.
- Ji Hun Kim, President & Acting CEO, Crypto Council for Innovation, stated that the global digital asset market currently exceeds $3.25 trillion. He said that in 2025, "approximately 28% of American adults, or about 65 million people, own digital assets." Mr. Kim recommended that Congress: (i) pass market structure legislation; (ii) pass stablecoin legislation; (iii) enhance clarity and cooperation between the SEC and CFTC; and (iv) prioritize supporting the development of DeFi technology and individual agency within the digital asset ecosystem.
- Coy Garrison, Partner, Steptoe LLP, recommended that the SEC: (i) acknowledge that a digital asset itself is not a security and provide clear guidance on when transactions fall under securities laws; (ii) reconsider agency lawsuits against Coinbase, Binance and Kraken for allegedly operating unregistered exchanges, broker-dealerships and clearing agencies; (iii) create a workable pathway for token issuers to register or qualify for exemptions; (iv) modify Regulation A and crowdfunding rules to make compliance feasible; (v) issue guidance on how broker-dealers can custody digital assets under the Customer Protection Rule and how investment advisers can comply with custody requirements; (vi) rescind recent rule-makings that negatively impact the industry (i.e. on custody, the expanded exchange definition and the expanded definition of "dealer"); and (vii) modernize transfer agent and clearing agency rules to enable the tokenization of traditional assets.
Commentary
This hearing is another Congressional step toward a framework for digital assets in the United States. The rollback of SAB 121 and the introduction of two stablecoin bills reflect real movement and a new direction for the industry. All the witnesses had a common refrain: damage was done to digital asset innovation by the prior administration, but now there is a real opportunity for positive change—all that's needed is the right legislative framework. The details, however, are to be determined.
It is critical for exchanges and other market participants to keep an eye on this fast changing legislative and regulatory environment. They might want to pay close attention to the work of Senator Cynthia Lummis, who was just named Chair, of a new Senate Banking Subcommittee on Digital Assets. Moreover, market participants may want to get directly involved in helping to shape the legislative debate by providing technical understanding to lawmakers.