The cryptocurrency industry, led by 50 top industry participants, is pleading with the United States Congress to expedite the regulation process or risk losing a great deal of investors.
Hosted by Representative Warren Davidson, R-Ohio, the roundtable conference featured a variety of attendees from the cryptocurrency industry, but there was a notable lack of representatives from anti-establishment groups and retail investors who speculatively got into trading Bitcoin.
The attendees to the discussion, which was held at the Library of Congress, included experts from financial bodies including Nasdaq, Fidelity, the U.S. Chamber of Commerce, State Street and Andreessen Horowitz.
The discussion revolved around issues surrounding Bitcoin regulation that remain unsolved even as Davidson looks forward to launching a related bill soon.
A hot-button issue that was repeatedly addressed was the application of the Howey Test, a securities law that was passed in 1946 by the U.S. Supreme Court, to digital currencies which are barely a decade old.
That 72-year-old law is still being used to decide whether cryptocurrencies qualify to be securities, and the Securities and Exchange Commission (SEC) Chairman Jay Clayton has no plans to review these standards to make them more suitable for digital currencies.
The chief policy officer at the San Francisco branch of Coinbase, Mike Lempres, was of the opinion that things should not necessarily be done the same way as they were done in the past and that the SEC would have to be open to the idea of making new laws to regulate cryptocurrencies.
Carla Carriveau, a former SEC employee who now works as a senior regulatory counsel at Circle, said that it was possible for the agency (SEC) to make exemptions for crypto as well as to clarify existing laws, but that it would rely on action from Congress.
The “Chilling Effect”
There was talk of a “chilling effect,” an uncertainty that arose from a lack of clear laws regulating ICOs that forced many companies to innovate less or to move their business to locations with clear-cut guidelines, and the effect it could have on U.S. innovation.
Stories of companies rushing to check whether their ICOs were compliant were shared in the roundtable discussion.
Some founders argued that ICOs with a “utility” use case would be more suitably governed by the Commodity Futures Trading Commission (CFTC) since they were treated like commodities, not securities. But the SEC still considers most if not all ICOs as securities.
David Forman, the chief legal officer at Fidelity Investments, spoke about the unfairness of punishing companies for abiding by laws that are not just unclear, but also unwritten and in many cases unknown to people.
While some SEC crackdowns took down ICOs that were downright fraudulent, the majority of them targeted and prosecuted others for violations that could be considered by many as minor.
Entrepreneurs face much fewer constraints when launching their crypto projects due to the lack of government backing, and a fear expressed by the attendees was that they would use this liberty to start their projects in more crypto-friendly jurisdictions overseas.
Joyce Lai, a lawyer with Consensys, said that despite the looming threat of a mass exodus to places with clearer crypto regulations, there is still a chance for the U.S. to remain at the forefront.
The attendees warned that if no clarity was provided and if the indiscriminate crackdowns on ICOs continued, companies would be forced to seek greener pastures overseas.
Data firm Autonomous Next reported that crypto has generated $12 billion this year alone, so Congress may have to pay attention before this becomes a problem.
The CEO of crypto exchange Kraken pointed out an underlying problem in the U.S. crypto environment—a lack of freedom to raise capital, which gave foreign companies the edge over most companies operating on U.S. soil.
What’s more, U.S. companies are not able to invest in these global companies either, he said and concluded that when it comes to matching the competition, whoever is capable of raising the most capital takes over the market.
The roundtable meeting was all about listening to the demands of the industry before an appropriate law could be drafted and introduced, according to Davidson, who also spoke about how important it was for Congress to move quickly to address the situation before it burgeons into a much bigger problem.