Democrats and Republicans in Congress are staking out sharply divergent views on cryptocurrencies.
Speaking at a Congressional hearing on Wednesday, Democrats laid out a case for broad “guardrails” to protect consumers and investors—arguing that the markets have become rife with manipulation, fraud, and “stablecoin” tokens that could actually destabilize the broader financial system.
“The mainstreaming of digital assets is laying the foundation for hugeswaths of the economy to invest in this market,” said Rep. Don Beyer (D-Va), chairman of the Joint Economic Committee, in a statement. Yet cryptos “create significant consumer protection issues,” he warned. He noted that retail investors may have been duped in the recent Squid Game token crash, which Binance, the world’s largest crypto exchange, is investigating. The token has no official affiliation with the hit Netflix series.
The heightened scrutiny in Washington may be creating more unease among crypto investors, and it could be one of several factors weighing on the market.
Bitcoin continued its slide on Thursday, trading down more than 2% and falling as low as $58,283, according to CoinMarketCap. Bitcoin is now well off its highs around $69,000, reached on November 10.
Ether was also weaker, falling 0.4% to $4,134. Other cryptos were faring worse, including Solana, down 4%, Dogecoin, off 5.4%, and Shiba Inu, sliding 10.9%.
Beyer urged lawmakers to pass a bill he introduced this summer, the DigitalAsset Market Structure and Investor Protection Act. The 58-page measure includes provisions to categorize some cryptos as securities, subjecting them to oversight by the Securities and Exchange Commission, and it would create a broad definition of digital assets as commodities, tasking the Commodity Futures Trading Commission with supervision.
Beyer also wants the Treasury Department to establish rules for stablecoins—tokens designed to maintain $1 value—arguing they pose systemic financial risks. Stablecoins, in his view, should be subject to capital reserves and liquidity requirements similar to rules for bank deposits and money-market funds. And he would like to ban stablecoins already on the market if they don’t receive federal approval.
Beyer’s bill “would not grandfather existing stablecoins,” requiring issuers to seek federal authorization, according to an analysis by the law firm Latham & Watkins.
Congress may not have to act on stablecoins, though, since the Biden administration is already working on rules to oversee the tokens, recently releasing recommendations to regulate the industry.
Republicans on the panel weren’t exactly on the same page.
Sen. Mike Lee (R-Utah) urged Congress to allow the technology to flourish, saying Congress should resist “one-size fits-all regulation” and calling it “kind of scary, especially when it’s targeted at cryptocurrency.” Lee warned that rigid rules would send companies developing blockchain technology overseas and added that Congress should apply rules already on the books with a “light touch.”
Even harsher warnings came from Sen. Ted Cruz (R-Tex), a strong advocate of crypto technology and Bitcoin mining, which is expanding rapidly in Texas.
“The one thing that’s capable of screwing all of this up is the U.S. Congress, and I have deep concerns that Congress is already in the process of doing so,” he said.
Cruz warned that the new infrastructure package includes an overly broad definition of crypto “brokers,” imposing unworkable reporting requirements on some intermediaries of transactions. He noted that the law makes it a felony not to report commercial crypto transactions over $10,000, similar to requirements for cash transactions.
He also had harsh words for lawmakers who may vote for new crypto rules without a full understanding of the technology. “I doubt there are five members of the United States Senate that could tell you what the hell a Bitcoin is,” Cruz said. Congress should legislate after studying crypto more extensively, rather than “using a machete.”
Cruz introduced legislation this week that would repeal the tax-reporting provisions in the infrastructure law. Its passage isn’t likely in the Democratic-controlled Senate. And the new rules won’t go into effect until 2024, giving crypto lobbyists and their allies in Congress time to mount legal challenges.
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