Today, the Senate Banking Committee hosted a hearing entitled “From Wall Street to Web3: Building Tomorrow’s Digital Asset Markets” in which U.S. senators from both sides of the aisle engaged with crypto industry leaders and digital asset specialists (witnesses at the hearing) to discuss digital asset market structure.
Key themes from the hearing included crypto’s role in illicit finance, the conflict of interest associated with the Trump family’s involvement in the crypto industry, and regulatory jurisdiction.
Senate Banking Chairman Tim Scott (R-SC) presided over the hearing alongside Ranking Member Elizabeth Warren (D-MA). They were joined by more than a half dozen other senators and six witnesses for two-and-a-half-hour session.
The witnesses included:
- Summer Mersinger, CEO of the Blockchain Association
- Jonathan Levin, CEO of Chainalysis
- Dan Robinson, General Partner at Paradigm
- Brad Garlinghouse, CEO of Ripple
- Timothy Massad, Research Fellow at the Kennedy School of Government at Harvard University and former Commodities and Futures Trading Commission (CFTC) chair
- Richard W. Painter, Former chief White House ethics lawyer
Crypto and Illicit Finance
In Senator Scott’s opening remarks, he noted that “more illegal activities happen with cash rather than crypto.”
Senate Banking Committee Ranking Member Senator Elizabeth Warren (D-MA) provided an opposing view in her opening remarks, as she made the claim that, as crypto’s total market capitalization has increased, so too has illicit activity on the blockchain. The senator then cited how North Koreans have hacked billions of dollars worth of crypto assets, creating a threat to U.S. national security in the process.
Levin provided some context, though, as he noted that “illicit activity is less than 1% of the overall activity that occurs on the blockchains,” while adding that this number is higher in traditional markets.
“The majority of the activity on blockchains is legitimate activity,” he added.
With that said, Levin noted that crypto mixers make Chainalysis’ work in monitoring public blockchains for criminal activity more difficult but also noted that Chainalysis has “seen less use of crypto mixers in terrorist financing than you might expect.”
The Trump Family’s Conflict of Interest With Crypto
Senators Raphael Warnock (D-GA), Chris Van Hollen (D-MD), and Warren all brought up what they termed President Trump’s “conflict of interest” in advocating for crypto legislation while he and his family are actively involved in the crypto industry.
In Senator Warren’s opening remarks, she noted that “$7 billion of President Trump’s wealth is now in crypto,” while Senator Warnock called into question the ethics of President Trump having issued a meme coin.
Senator Van Hollen detailed the scenario in which Eric Trump met with an investment firm in the United Arab Emirates (UAE) regarding a stablecoin that his company, World Liberty Financial, issued ahead of his father’s visit to the country (the firm ended up investing $2 billion in the project). The senator then noted that certain crypto legislation would benefit World Liberty Financial.
Painter, who argued earlier in the session that “we cannot have the people who are in charge of passing and enforcing [crypto] legislation have conflicts of interest… this includes the President,” stated that we’re currently witnessing one of the biggest ethical financial violations by a sitting president in the last 100 years.
Regulatory Jurisdiction: Splitting Authority between The CFTC and SEC
Throughout the hearing, Massad argued that the U.S. Securities and Exchange Commission (SEC) and the CFTC should work together in regulating the digital asset industry.
“The solution is not for Congress to become the regulator,” stated Massad. “It’s for the SEC and CFTC to work together.”
Massad added that the “industry has taken advantage of the gap between the SEC and CFTC.”
Mersinger also noted that she would like to see collaboration between the two agencies, though she stated that she would like to see the CFTC have more power over crypto markets, as the agency takes a more “principles-based approach,” which Mersinger claimed is “better for the industry.”
Massad commented the importance of taking such an approach, as he said that “Congress should think in terms of principles, not detailed rules, because those [rules] can become obsolete quickly.”
Senator Katie Britt (R-AL) also spoke up in favor of a principles-based approach.
“We should have a principles-based regulatory regime and prevent having restrictive regulations around this industry,” she said.
(Neither Mersinger nor Massad nor Senator Britt provided any color as to what these principles might look like.)
Noting Bipartisan Legislative Efforts
Approximately halfway through the hearing, Senator Bernie Moreno (R-OH) stated that crypto is more of a “generational issue” than it is a Republican v. Democrat issue.
And Senator Scott praised Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) for the legislation that they’ve drafted together, starting in 2022, alluding to the notion that the two senators set a standard for what sensible bipartisan crypto legislation should look like.
In Senator Lummis’ remarks toward the end of the hearing, she thanked Senator Gillibrand for working with her to craft legislation that “protects consumers, but that also works for the innovators.”
The senator also thanked her Democratic colleagues for their diligence in working with Republicans to bring about legislation, starting with the GENIUS Act, before closing with a showstopping monologue on Bitcoin and the cypherpunks, the progenitors of Bitcoin and digital assets.
“You look at the internet that and the cypherpunks of the 80s and 90s who were creating code and using cryptography and the government was afraid of it, so the NSA called [cryptography] a weapon and classified it as something that should not be available to the general public,” started Senator Lummis.
“But our courts in this country decided that cryptography and code writing is protected free speech under the first amendment — and that was a game changer. It made it possible for those very brilliant minds to make available to each other, through open-source, the cryptography and code writing that made it possible in 2009 for the first digital asset to appear on the scene,” she added.
“So, now we’re at the point where from 2009 [to] where we are today, we have a mature industry that is asking us to provide clear rules of the road…We’re in the right place at the right time to help these innovators to take their rightful place in the global economy [and] an asset that is important to our country, that is important to individual freedom, that is important to the unbanked and underbanked, and that will make available to people the opportunity to grow [wealth] — as opposed to our own U.S. dollar, which is, by design, decreasing in value.”