Witnesses Call for Crypto Clarity Amid Global Regulatory Race
Witnesses before the Senate Banking Committee's Subcommittee on Digital Assets urged Congress to pass clear legislation to regulate the cryptocurrency market.
At the hearing titled "Exploring Bipartisan Legislative Frameworks for Digital Asset Market Structure," the following witnesses testified:
Sarah Hammer, Executive Director at the Wharton School and a former Treasury official, asserted that in the past two years, the US has fallen from 45 percent to 34 percent of global crypto venture funding. She noted that nearly two-thirds of all venture investment in digital assets occurred outside the US. Ms. Hammer highlighted how jurisdictions like the EU, Singapore, and the UAE have already established robust regulatory frameworks thereby accelerating crypto adoption. She called for a US digital asset taxonomy codified by statute, rigorous consumer protections and an end to "regulation by enforcement." Ms. Hammer also urged Congress to adopt best practices from abroad, including explicit licensing, stablecoin reserve requirements, and safe harbor provisions in bankruptcy law.
Rostin Behnam, former CFTC Chair, warned that the lack of regulation for non-security digital assets is a "gap [that] has facilitated countless scandals and fraudulent activity." Mr. Behnam emphasized that while securities are well-covered by existing frameworks, commodities like Bitcoin and other tokens continue to operate in a regulatory grey area. He said that the "current trajectory is not sustainable," adding that, without congressional action, "greater risk to our financial markets and investors" is inevitable. Mr. Behnam advocated for legislation that builds on the existing regulatory model, stressing the importance of giving the CFTC and SEC "exclusive licensing authority" over their respective domains. He also called for adequate funding, flexible rulemaking, and a role for self-regulatory organizations like the National Futures Association and FINRA.
Ryan VanGrack, Coinbase Vice President of Legal and a former SEC enforcement official, urged the adoption of simple, uniform rules to replace the current "patchwork of inconsistent state laws and enforcement." With more than 20 percent of Americans holding digital assets, Mr. VanGrack warned, "[t]he promise [of digital assets] is at risk due to the absence of a clear, uniform, and simple regulatory framework." Mr. VanGrack framed the debate as one not of deregulation, but of modernization. He said: "Laws enacted decades ago were not designed for this transformative technology." He proposed three principles that should underscore proposed legislation: (i) clarity around the status of digital assets, (ii) uniformity across jurisdictions and (iii) simplicity for all market participants.
Gregory Xethalis, General Counsel of Multicoin Capital, a venture capital firm, warned that "[u]ncertainty kills momentum" and "deters capital, paralyzes builders, and prevents ambitious ideas from gaining traction." He praised bipartisan efforts like the CLARITY Act and the Responsible Financial Innovation Act ("RFIA"), calling them "complementary" and potentially transformative if passed together. He advocated for "bright-line rules" to help developers determine whether a token is a security or a commodity, and for regulatory flexibility that avoids "lock[ing] in yesterday's assumptions." Mr. Xethalis also championed decentralized finance ("DeFi") and self-custody as "foundational design features" that must be protected in any legislative effort. He warned: "If we limit or chill DeFi and self-custody, we limit the entire lifecycle of innovation."