The True Sentiment Behind the Senate Meeting on Bitcoin, ICOs, and Blockchain Technology
On February 6, 2018, the Senate created a forum to discuss cryptocurrencies in a meeting titled, “Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission.” This meeting had been long anticipated by the community, with many speculating that this session could be a “make or break” moment for the cryptocurrency community. As expected, the meeting did reveal many details about Congress’s sentiment toward cryptocurrencies in general as well as their thoughts on particular regulations on specific practices in the cryptosphere as well.
What Was This Meeting?
For those unfamiliar with how Senate hearings work in the United States, the following should provide a brief, accurate description. The Senate is a body of lawmakers in the United States similar to a parliament. Their jobs are to investigate anything under the sun related to the interests of the United States and the American people at large. To be effective in this role, the Senate is broken down into different committees.
This specific hearing on cryptocurrencies was a legislative hearing in front of the Senate Banking Committee. Before the Senate acts to create any laws, they have a hearing where they invite experts or other agencies who they think are knowledgeable about a particular situation before they create any statutes or pursue regulatory action on it.
For this hearing, the Senate called upon Jay Clayton and Christopher Giancarlo. Jay Clayton is the head of the U.S. Securities and Exchanges Commission (SEC). The SEC is responsible for regulating all the stocks, securities, and assets and making sure the companies issuing these instruments are following the rules.
Christopher Giancarlo is the head of the Commodity Futures Trading Commission (CFTC). Remember when Bitcoin futures were released? The CFTC was the regulating organization responsible for approving this move by the CME and CBOE.
This hearing was a meeting of the Senators in Congress asking those two guys (Giancarlo and Clayton) questions about cryptocurrency and the issues, if any, so that they can get a better idea of what it is and how it works before they pass any legislative measures.
Thus, the answers that Jay Clayton and Christopher Giancarlo gave about cryptocurrency hold a lot of weight.
How Do Clayton and Giancarlo Feel About Cryptocurrency?
Fortunately, we don’t have to guess too much, because Clayton, posted a transcript of the opening remarks he would deliver to Congress and posted this on the SEC website directly.
As expected, the SEC wants to crack down on the prevalence of ICOs, and this should come as no surprise to anyone that saw the letter that the SEC posted on its website in early December.
In the next portion of the letter that Clayton posted on the SEC website, the chairman provides additional talking points surrounding cryptocurrencies:
These statements bode very well for the crypto community for a few reasons:
- Clayton was careful to point out some of the positive aspects of cryptocurrency and the most popular purported benefits (although we could list a litany of others that weren’t mentioned). This gesture shows that the intention of the SEC was not to skew the perception of cryptocurrencies in a way that would prompt Congress to move with harsh regulation.
- The SEC has made it clear that it’s intention is not to shut down cryptocurrencies. Their main focus appears to be making sure that people abide by the established securities laws that are already in place of which is a legitimate concern. The SEC is under the impression that some of these ICOs are just Ponzi schemes or blatant financial fraud schemes that are designed to solicit money from unsuspecting investors before disappearing.
- If token sales register with the SEC, then they will be forced to divulge company information and those responsible for defrauding individuals can be held accountable. This measure is one that the author supports and something that would be beneficial to the community as a whole. There is no room for theft in the crypto community, and if it becomes rampant enough, then it could severely hinder widespread adoption.
It’s worth noting that the SEC also put this on their site:
There may be no greater proof than the statement above that the SEC is committed to implementing some form of regulation, if necessary, in a manner that allows the cryptosphere to breathe. So, those in the cryptosphere can finally exhale – we don’t anticipate there will be any draconian destruction of the community like the crusade going on in China where the state has waged outright war against cryptocurrency.
How Does Christopher Giancarlo Feel About Cryptocurrency?
If anything, Giancarlo’s attitude toward cryptocurrency can be described as favorable. Giancarlo, in his opening statement, was careful to present cryptocurrencies with a positive, accurate and informative description.
Here’s an excerpt of his remarks below:
To say that this is an optimistic outlook would be an understatement. Giancarlo also urged that Congress exercise extreme caution before proposing any potential regulations, stating that doing so in a hasty way could impede the potential benefits of the cryptocurrency community from manifesting. He even went as far as explaining the mining process of bitcoin, justifying its valuation.
However, it must be noted that Giancarlo did say that “bitcoin is not useful as a currency.” This statement is important to consider because this means that Giancarlo feels that the pioneer currency is an asset and should thus be treated as a commodity. In the United States, this comes with a host of implications, regulatory-wise, when viewing cryptocurrencies.
It’s hard to imagine that anyone genuinely ignorant of the nature of bitcoin or cryptocurrencies, in general, would have left the meeting under the impression that this is an industry that needs to be curbed.
So What Did the Senators Actually Say About Cryptocurrency?
More to the point, the questions asked and the statements made by the Senators revealed that most of them were open-minded, if not somewhat optimistic about the future of cryptocurrency.
Senator Michael Crapo asked Clayton and Giancarlo for guidance on whether the two felt that any additional regulation in the cryptosphere was needed. Both Clayton and Giancarlo affirmed that there was, but did not state what specifically.
Senator Sherrod Brown asked about how ICOs would be regulated, and Clayton, on behalf of the SEC, replied that he was unsure of how to tackle the task and that he did not have the resources necessary to do so at this current point in time.
Senator Richard Shelby questioned how the SEC and CFTC have collaborated to regulate the industry and Clayton, and Giancarlo replied stating that it was an ongoing process and that the two entities have not yet come up with a “formula” for regulating yet.
Senator Mike Rounds asked if the two financial agencies had invested in bringing “computer experts” on board that truly understand the industry well enough to help the SEC and CFTC in their regulatory efforts. Clayton affirmed that staff were getting “up to speed” and Giancarlo stated that they did not yet have individuals with this capability delegated to focusing on cryptocurrency yet but that this effort was in the making.
Senator Elizabeth Warren didn’t appear to be too interested in finding out more about cryptocurrency and instead turned the conversation around to an unrelated topic.
Senator Joseph Donnelly asked the two whether they had undertaken any efforts to educate retail investors about the potential risks of investing in cryptocurrencies. Clayton and Giancarlo both responded that no substantive efforts had been launched at the time of the hearing.
Senator John Kennedy was perhaps the most anti-regulatory voice among the entire Senate committee. He asked Clayton whether he had bothered to do his due diligence (read every detail about the security) the last time that he purchased a security. When Clayton stated that he had not, Senator Kennedy posed the interesting question of whether it was useful to undergo any significant efforts to “protect” the retail investor by forcing companies to provide information when the average investor wouldn’t take the time to read any advisory warnings.
Senator Mark Warner was arguably the most bullish voice of all the committee members, asserting, “I think we may have something that is transformational.” Thus, in at least this respect, it can be said that Senator Warner believes firmly in the utility and prospective future value of cryptocurrency.
Senator Tom Cotton asked for Clayton and Giancarlo’s opinions on blockchain technology itself. Both of them expressed very positive sentiments regarding blockchain technology. However, it was Giancarlo that took the greatest stand for Bitcoin by explaining that the innovation would not be in existence today if it were not for the creation of the Bitcoin network.
Senator Bob Menendez asked about the prevalence of cryptocurrency usage by countries that were currently being sanctioned and how it could potentially be used to circumvent these economic restrictions imposed by the United States or United Nations. Since neither Clayton nor Giancarlo have the authority to regulate these actions, they declined to give any definitive statements. Senator Menendez was also curious about what measures had been taken to stop ICOs from leveraging celebrity endorsements to lure unsuspecting investors. Clayton affirmed that he had put out an official warning outlining that the punitive legal actions that an ICO incurred would also be incurred by the celebrity. The chairman iterated that this notice had been very effective in deterring subsequent celebrity endorsements.
Senator Catherine Cortez Masto asked about the prevalence of companies merely adopting blockchain technology artificially without any plans of actually implementing it in hopes that the news itself would raise their stock price. This question wasn’t specifically related to cryptocurrencies, however.
This, in essence, concluded the hearing. Each of these summarized question and answer sessions between the respective Senators, Clayton and Giancarlo, were adapted from Finance Magnates who posted live updates of the meeting itself.