Interpreting the U.S. House of Representatives Cryptocurrency Hearing: Shift in Attitude, Emphasis on Regulatory Rules, Outlook for the Future of Web 3.0

Author: Xu Cihao, Caixin News

In the past, the U.S. House of Representatives has held several hearings on cryptocurrency, but lawmakers mostly condemned industry issues and practitioners, including questioning Zuckerberg. However, this hearing marked a "style shift," with most lawmakers expressing a favorable view of the crypto industry and even suggesting that there is currently a tendency for overregulation, encouraging practitioners to develop their businesses.

On December 8 at 11 PM Beijing time, Maxine Waters, chair of the U.S. House Financial Services Committee, hosted a hearing titled "The Future of Crypto Assets and Finance: Understanding the Challenges and Benefits of U.S. Financial Innovation."

House members sought to gain a deeper understanding of crypto assets through the hearing and debated the appropriate regulatory framework. The debate primarily focused on regulatory approaches, stablecoins, investor protection, Web 3.0, and other industry issues.

During the nearly five-hour hearing, executives from six major crypto-related companies appeared and testified, explaining the promising future of crypto technology. They included: Circle CEO Jeremy Allaire, FTX CEO Sam Bankman-Fried, Bitfury CEO Brian Brooks, Paxos CEO Chad Cascarilla, Stellar CEO Denelle Dixon, and Coinbase CFO Alesia Haas.

In the past, the U.S. House of Representatives has held several hearings on cryptocurrency, but lawmakers mostly condemned industry issues and practitioners, including questioning Zuckerberg. However, this hearing marked a "style shift," with most lawmakers expressing a favorable view of the crypto industry and even suggesting that there is currently a tendency for overregulation, encouraging practitioners to develop their businesses.

Notably, Congressman Patrick McHenry stated during the hearing that Web 3.0 is the future of the internet and that innovation should not be stifled by excessive regulation, emphasizing the need for the U.S. to maintain a competitive edge in Web 3.0.

As a result, this hearing has been described by outsiders as the most positive, constructive, and bipartisan crypto hearing in history.

On Regulatory Rules

During the hearing, Congressman Ted Budd expressed concern that this "nanny state" has set too many rules for cryptocurrency.

Republican Congressman Patrick McHenry pointed out that while the technology in the crypto space is already regulated, the existing regulatory framework may be clumsy and outdated, with a tendency for overregulation.

"There is a reason why talent in the crypto industry is no longer concentrated in Silicon Valley." Bitfury CEO Brian Brooks added during the hearing that some companies involved in digital assets have found friendlier environments outside the U.S., such as Fidelity launching a spot Bitcoin ETF in Canada.

Congressman Jake Auchincloss also stated that a "regulate through enforcement" system is unfair to crypto companies that must navigate between different regulatory agencies, and he is willing to work with both Republicans and Democrats to address these concerns. In his view, collaboration between primary market regulators and private sector self-regulatory organizations could address issues like custody requirements and stablecoin standards, which may be most meaningful for the market.

Brian Brooks of Bitfury shared the same view as Jake Auchincloss. He noted that the uniqueness of the U.S. lies in its decentralized banking regulatory system and suggested that the U.S. should apply existing regulatory agencies to enforce current rules on cryptocurrencies rather than having a single regulatory body oversee the entire industry.

"The focus should be on addressing gaps and creating a fair competitive environment," said Matt Home, managing partner at Nyca Partners and former executive deputy superintendent of the New York Department of Financial Services, noting that the crypto industry is already regulated.

On Web 3.0

"Cryptocurrency may have a greater impact on the future than the internet; how do we ensure that the Web 3.0 revolution happens in the U.S.?" Republican Congressman Patrick McHenry emphasized during the hearing that what is needed now are reasonable rules, not knee-jerk regulations driven by fear of the unknown, as such fears would stifle U.S. innovation and put the country at a competitive disadvantage.

"You can't own the current internet (that's Google and other companies), but you can own Ethereum. Web 3.0 allows users to own the internet rather than just being owned by monopolistic companies," Brian Brooks stated, adding that policy should not only consider the new risks brought by blockchain technology but also the solutions offered by decentralization.

"Web 3.0 allows users to own the internet rather than just being owned by monopolistic companies," Brian Brooks further explained that Web 1.0 was merely readable, Web 2.0 became writable, allowing not just content consumption but also content creation. Web 3.0 enables ownership of internet content, granting users ownership rights.

In the view of Tomicah Tilleman, policy director at a16z, this is the first time that congressional members have emphasized Web 3.0 as the future of the internet through a full committee hearing platform. This marks a historic turning point in the national discussion on decentralized technology, with committee members acknowledging that Web 3.0 platforms have the potential to address many of the issues they care about, including remittances and financial inclusion.

Tomicah Tilleman commented that all participants' statements during the hearing were reasonable and constructive.

On Current Industry Issues

During the hearing, lawmakers also inquired about the volatility of cryptocurrency prices, insufficient company disclosures, and excessive industry bubbles.

Bitfury CEO Brian Brooks pointed out that traditional asset price discovery mechanisms are more robust; however, the U.S. has not done enough in the crypto space, necessitating more price discovery mechanisms and liquidity.

During the hearing, Todd Phillips, director of financial regulation at the Center for American Progress, stated that according to the Howey test, if something is a contract, transaction, or scheme where a person invests money in a common enterprise and expects profits solely from the efforts of the promoter or a third party, then it is a security. Essentially, if someone raises funds by issuing governance tokens to write DeFi applications or similar projects, it is a security and subject to SEC regulation. This test is clear and has been used for nearly 80 years, and attempting to obfuscate this fact is malicious.

Congresswoman Rashida Tlaib inquired about Bitcoin's energy usage, pointing out that the cryptocurrency industry "currently consumes enough energy to power a small country."

Tlaib stated that Bitcoin mining consumes more energy than Argentina, Apple, Facebook, and Microsoft combined.

In response, Stellar CEO Denelle Dixon stated that there are different types of consensus mechanisms in cryptocurrency that use less energy or may be more environmentally friendly. Dixon pointed to examples like Marathon Digital's power plant in Montana and Greenidge Generation's New York mining facility, both of which were previously closed coal-fired power plants repurposed for crypto use. Dixon said, "We all need to focus on reducing energy usage."

Throughout the hearing, only one member of the House Financial Services Committee, Brad Sherman, expressed dissatisfaction with the crypto industry, arguing that it has received support from Wall Street, creating a conflict of interest.

"We have social forces in Wall Street and Washington that have spent millions of dollars and are working to earn billions. This includes Goldman Sachs, BlackRock, Visa, Citadel, Musk, and Zuckerberg. Not to mention the CEOs in front of us today. If you want to know where the power lies, Zuckerberg had to step up and attend this hearing. Coinbase CEO Brian Armstrong (who did not attend) sent his second-in-command (Coinbase CFO). And Tether didn't show up at all," Brad Sherman vehemently condemned.

He then reiterated that the biggest threat to cryptocurrency is cryptocurrency itself, as Bitcoin could be replaced by Ethereum, while fiat currency could not.

Additionally, regarding stablecoins, Congressman Sean Casten asked Circle CEO Jeremy Allaire whether he supports the recommendations in the presidential working group's report on stablecoins.

"I support many of the recommendations, but it cannot be generalized. I believe there are many challenges in the report," Jeremy Allaire responded, noting that the first question is what form the federal charter for stablecoin issuers will take, and there are other details that need clarification.

Notably, during this crypto hearing, Congressman Bill Foster asked if any witnesses opposed "controlled anonymity" in digital currencies, which means that when illegal activities occur, regulators can eliminate the anonymity of criminal accounts for tracking purposes. No witnesses opposed this question.