Representative Maxine Waters, the chairwoman of the House Financial Services Committee, called Wednesday’s hearing on cryptocurrency.Credit...Sarahbeth Maney/The New York Times
The chief executives of six cryptocurrency companies testified for nearly five hours on Wednesday before the House Financial Services Committee about the promises and perils of cryptocurrencies.
The hearing was called by Representative Maxine Waters, the California Democrat who leads the committee, as part of an effort to understand fast-growing digital assets — and how to regulate them. It followed familiar partisan patterns, with Democrats expressing concern about crypto’s risks as Republicans emphasized innovation and said that strict regulation would drive the industry away from the United States.
Ms. Waters expressed concern about how quickly crypto is being adopted, noting that the “rapid growth” has been fueled in part by celebrity endorsements. These digital assets currently have no “overarching regulatory framework” at the federal level, she said.
Her Republican counterpart on the committee, Representative Patrick T. McHenry of North Carolina, said that his colleagues may not be as steeped in the technology as they need to be to write new rules: “I ask my friends on the Hill, do you know enough about this?”
In one later exchange, Representative Alexandria Ocasio-Cortez, Democrat of New York, expressed doubt about executives’ arguments that crypto represented a radical reshaping of commerce and finance. “What do you say to the folks that say this doesn’t seem like a new financial system per se but an expansion of the old one?” she asked Jeremy Allaire, the chief executive of the payments company Circle.
“I really do believe we are building a new global economic infrastructure layer,” Mr. Allaire replied, adding that crypto needs to be integrated with the traditional financial system, creating “a hybrid model.”
Brian Brooks, an acting comptroller of the currency under President Donald J. Trump and now the chief executive of the blockchain technology company Bitfury, asked lawmakers to consider the decentralization that crypto systems can offer and whether Americans want an internet that puts ownership in the hands of users as opposed to a few giant tech companies.
Eroding the power of the tech giants, an issue with bipartisan support in Congress, is an argument commonly advanced by crypto enthusiasts to promote web3 — the industry term for a vision of the next generation of the internet run on blockchain-based tokens. But Ms. Waters probed the panel about the role of Big Tech in the crypto economy.
She told Charles Cascarilla, the head of Paxos, that she was “concerned” about a pilot program his company was involved in with Novi, a digital wallet created by Meta, the parent company of Facebook. Ms. Waters worried about billions of social media users worldwide someday transacting in crypto using a privately issued stablecoin, a type of cryptocurrency pegged to the value of stable assets such as the dollar, which Paxos specializes in.
Mr. Cascarilla said the program was new and small. He and his peers sought to assure lawmakers that they believe in the need for regulation and pointed out that they already have to follow a lot of rules.
Sam Bankman-Fried, the chief of the crypto exchange FTX, noted that his company had recently submitted a proposal to regulators suggesting a “unified joint regime” on crypto for agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission. Alesia Haas, the chief of Coinbase’s exchange in the United States and the company’s chief financial officer, said that Coinbase was not necessarily calling for the creation of a new regulator but that it sought more regulatory clarity on crypto’s status.
The executives repeatedly criticized Gary Gensler, the chairman of the S.E.C., who has said that many crypto tokens fall under the agency’s purview and should be registered as securities, which would require extra disclosure and compliance costs. Representative Warren Davidson, Republican of Ohio, said crypto law should not be an “interpretive art” and called for new, clear rules.
Experts who watched the hearing said the prospects for swift legislative action were uncertain. Lee Reiners, the executive director of the Global Financial Markets Center at Duke University and formerly of the Federal Reserve Bank of New York, said there would be no substantial change in rules until there is a crypto-linked financial crisis that hurts “the proverbial widows and orphans.”
Brett Redfearn, a former director of trading and markets at the S.E.C. who briefly worked for Coinbase this year and is now advising crypto companies, said that “as unlikely as it seems, Congress should act as expeditiously as possible.”
Cryptocurrency is back on the agenda in Congress again next week: Senator Sherrod Brown of Ohio, the Democratic chairman of the Senate Banking Committee, has called a hearing on stablecoins. The witness list has not been finalized.
Mr. Brown said in an interview that his hearing would be a “step” toward legislation and that he was “working together” with financial regulators like the Securities and Exchange Commission and the Treasury Department. “I want responsible innovation, and that means rules,” he said.