the staff of the Ridgewood blog
Washington DC, Tuesday’s hearing showed “a chasm a mile wide” between the Chairman and the experiences of American businesses, says Sheila Warren, CEO of the Crypto Council for Innovation. Securities and Exchange Commission Chairman Gary Gensler faced a barrage of criticism from House Republicans over his agency’s crackdown on cryptocurrency trading platforms.
In more than four hours of testimony before the House Financial Services Committee, Gensler stood firm on his view that crypto trading platforms and exchanges should abide by strict U.S. securities laws. “All of these companies should come into compliance with the law, and until they do, we will continue to pursue them as the cop on the beat, and investigate and follow the facts and law,” Gensler told the panel.
Several themes stood out, along with many inaccuracies about a growing part of the US digital economy. Chairman Gensler said remarks will “influence” his way of thinking. There is a growing chasm a mile wide between what he says and the realities experienced by American businesses.
Republicans raised many of the points the crypto industry regularly makes about regulation, arguing that the SEC’s disclosure rules were designed to regulate traditional markets, and they are ill suited to decentralized digital currency exchanges. Without legislation from Congress that creates a new regulatory framework specifically for crypto, the companies argue, digital platforms will move overseas to avoid running afoul of U.S. regulators. This could weaken America’s status as a hub for cryptocurrency innovation, they argue, and potentially cede that position to U.S. adversaries.
Gensler said that companies in this space have a business model built around non-compliance. Yet there is a history of projects that have attempted to register and even uncertainty on how to do so from publicly traded companies. No clarity was provided.
How will it protect American consumers, if the SEC shuts down US exchanges, US investors will continue to turn to foreign trading platforms, which Chairman Gensler admitted is already happening and harder to regulate. There were no answers to questions on how the agency, which is supposed to protect American consumers, plans to protect them from rogue actors here and abroad.
“Your approach is driving innovation overseas and endangering American competitiveness,” committee chairman Rep. Patrick McHenry, R-N.C., told Gensler at the start of the hearing. “Regulation by enforcement is not sufficient nor sustainable,” said McHenry. “You’re punishing digital asset firms for allegedly not adhering to the law when they don’t know it will apply to them.”
Members of Congress also raised concerns about the national security implications of the US losing ground in this field. As the country cedes market share to other nations, there is a risk of unchecked national security threats due to the relocation of expertise. Other countries, and not just US allies, are heavily investing in the new digital economy and constructing alternative financial systems to rival the US. It is imperative to address these growing threats to national and economic security.
