By George Nethercutt, Jr., former U.S. Representative (WA 5th)
One of the biggest names in tech could be on a path toward entering the cryptocurrency space. At a recent event, Apple Pay vice president Jennifer Bailey related, “We’re watching cryptocurrency. [. . .] We think it has interesting long-term potential.” Her pronouncement is sure to pique interest in Washington, particularly in light of a summer full of congressional hearings on cryptocurrencies.
On July 30, the Senate Banking Committee held a hearing focusing on regulatory frameworks for digital currencies, and it was a relief to those following the industry in recent years. The opportunity was an important first step for the development of a regulatory framework supporting this budding industry, despite Congress’ bumpy start in looking at crypto.
The Senate Banking Committee hearing arrived fresh on the heels of a separate pair of Congressional hearings on Facebook’s proposed entry into cryptocurrencies – which had collapsed into a war of soundbites – with some seizing on Facebook’s handling of privacy issues and others claiming Libra, the social media giant’s proposed cryptocurrency, poses more of a threat to the U.S. than the 9/11 terrorist attacks. Nothing was accomplished there, and the hundreds of American developers working for years on building blockchain technologies into a viable industry were ignored. Facebook CEO Mark Zuckerberg’s recent return to Capitol Hill to discuss privacy legislation should serve as a reminder that the company needs to get its house in order before diving head first into crypto. But, overlooking the best and brightest in crypto in favor of taking shots at Facebook runs the serious risk of throwing the baby out with the bathwater.
In fact, one industry leader published an open letter to Congress making such a plea, underscoring the compliance efforts of the majority of the industry and reiterating the need for regulatory clarity. In a July 29 letter, Ripple CEO Brad Garlinghouse encouraged Congress to approach crypto companies in a nuanced manner, writing, “We urge you to support regulation that does not disadvantage U.S. companies using these technologies to innovate responsibly, and classifies digital currencies in a way that recognizes their fundamental differences—not painting them with a broad brush.”
The truth of the matter is that this could be a pivotal moment for cryptocurrencies. Facebook has garnered an unprecedented level of attention for the space. We must harness this scrutiny proactively and translate it into positive action that catalyzes an economic engine for the United States. One of the Libra hearing’s expert panelists, CoinShares chief strategy officer Meltem Demirors, underscored this sentiment, stating in an interview afterward, “I’m hopeful that today’s efforts helped push things forward and that it created some of the much-needed political momentum to get [crypto regulation] going.” From the utility tokens that Ripple is developing to supply chain management and smart legal contracts, the decentralized nature of blockchain technology holds untold potential.
As I’ve previously argued, a crucial aspect of fulfilling this possibility in the U.S. will be to develop a “light-touch” regulatory framework that provides certainty for crypto developers to move forward. To date, piecemeal regulation has left any one company wondering how a number of regulators – including the SEC, CFTC, and IRS at the federal level (just to name a few) in addition to state-based authorities – might categorize their product and subsequently regulate it.
This haphazard regulatory ecosystem is counterproductive to promoting investment. Crypto is truly an American innovation, and we must ensure that it remains one. Without overarching guidelines, developers may be forced to find greener regulatory pastures outside the U.S. In fact, countries like Belarus, Bahrain, Malta and Gibraltar are already developing specific rules for the cryptocurrency sector in bids to foster an attractive environment. The U.S. must not cede the leading edge to others.
Further, regulatory uncertainty impacts not only cryptocurrency developers, but also the technology’s users. Just last week, the Internal Revenue Service (IRS) started sending letters to more than 10,000 cryptocurrency holders, warning they may have broken federal tax laws. Unfortunately, it’s all too easy to see how users are unable to keep track of a tangled web of various oversight authorities – and face unforeseen legal consequences. If cryptocurrencies are to become a truly mainstream financial tool, consumers must be able to understand how they’re classified.
Simply put, Congress has an opportunity to get crypto regulation right – if lawmakers are able to cut through the noise surrounding Facebook and take a clear-eyed look at the challenges facing all companies in the industry. To echo Garlinghouse’s conclusion, “Let’s come together and seize the moment.” Let’s hope Congress doesn’t waste it.
George Nethercutt Jr. is the founder and chairman of The George Nethercutt Civics Foundation and was a Republican member of the U.S. House of Representatives from 1995 to 2005, representing Washington’s 5th Congressional District, where he served on the House Appropriations Committee.