As the US Securities and Exchange Commission (SEC) intensifies its comprehensive crackdown on the crypto industry, filing lawsuits against Binance and Coinbase, the House Agriculture Committee held a double-panel hearing on digital asset regulation on June 6.
The hearing was a veritable “all-star lineup,” chaired by Rostin Behnam, chairman of the Commodity Futures Trading Commission (CFTC), with Coinbase Chief Legal Officer Blockingul Grewal and Robinhood Chief Legal, Compliance, and Corporate Affairs Officer Dan Gallagher participating in the second panel discussion. Witnesses on the second panel also included former CFTC Chairman Christopher Giancarlo, former CFTC Commissioner and former SEC General Counsel Dan Berkovitz, and former CFTC Acting Chairman Walt Lukken.
Enforcement regulation is unsustainable, and the division of regulatory responsibilities is not a “zero-sum game”
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Several legislators expressed concern about the current enforcement regulatory model being used in the United States. Republicans, especially those on the House Agriculture Committee, criticized Gensler’s cryptocurrency regulation, claiming that his agency had “overreached.”
Rep. Glenn Thompson, a Pennsylvania Republican and chairman of the committee, said at the hearing, “While I won’t and can’t speak to any specific allegations against [Coinbase], I do want to point out that this type of behavior is why we’re having this hearing today, and enforcement regulation is not the appropriate way to manage markets, fully protect customers, or promote innovation.”
CFTC Chairman Rostin Behnam said that the SEC should have regulatory authority over assets classified as securities, but enforcement regulation is unsustainable. He added, “The fact is, the largest token, Bitcoin, is a commodity, as ruled by US courts, and is not regulated by the SEC under US law.”
South Dakota Republican Rep. Dusty Johnson explored whether the SEC should specifically manage digital assets. Behnam believes that the division of US crypto regulatory responsibilities is not a “zero-sum game,” saying, “I’m not going to take away from anybody else any legislative or legal authority that the CFTC might get. But there is indeed a regulatory vacuum, and there is a gap in the oversight of digital commodity assets.”
During the meeting, Behnam focused his comments on the need for clear classification of cryptocurrency tokens, existing regulatory enforcement practices, and the call for clear regulatory guidance, stating the urgent need to expand the CFTC’s power in the cryptocurrency commodity space and noting that few exchanges formally list assets as commodities.
Behnam further asserted that the problem is not the CFTC or SEC taking legal action against illegal entities, but rather the need to strengthen congressional power to manage cryptocurrency-related risks and establish clear regulations.
Behnam also warned of potential financial instability risks: “The volatility of the cryptocurrency market has stabilized over the past six months, and if it fluctuates and grows again, we may face serious financial stability issues.”
SEC Refuses Industry Communication and Dialogue
Coinbase Chief Legal Officer Blockingul Grewal criticized SEC’s regulatory enforcement in the absence of clear rules for the digital asset industry, arguing that this approach is damaging to America’s economic competitiveness and companies like Coinbase that are committed to compliance, and called for “fair rules” for cryptocurrencies to be established.
The legislators did not ask about specific allegations against Coinbase, but spoke about issues raised in the lawsuit, such as token classification and exchange registration. Grewal responded that Coinbase underwent a lengthy review process in accordance with SEC requirements before being approved for a direct listing in 2021.
He said, “In the current situation with the United States Securities and Exchange Commission… they keep emphasizing ‘come in and register,’ but as Coinbase tried to discuss how to register… after months and months of discussions, we are still being ignored.”
Grewal said, “I am still digesting the allegations we received today, but what I can say in more detail is that we have had a lot of interaction with the SEC, not just for a few months, but for years.”
Robinhood Chief Legal and Compliance Officer Gallagher expressed similar frustration to Grewal, saying that Robinhood has spent over a year complying with SEC’s current regulatory requirements, stating, “When Gensler said ‘come in and register,’ we did… we went through a 16-month process with SEC staff trying to register as a special-purpose broker-dealer, and then we were told in March that that process was over, and we haven’t seen any fruits of that labor.”
Solana (SOL), cardano (ADA), and polygon (MATIC), which have been classified as securities in lawsuits against Coinbase and Binance, are currently tradable on Robinhood’s cryptocurrency platform. Dan Gallagher, Robinhood’s Chief Legal Officer and former SEC commissioner, stated during the hearing that the company is considering how to handle the tokens listed on its platform.
All members of the panel and most lawmakers agree on the path forward for cryptocurrencies: Congress should act immediately to address current regulatory loopholes to protect consumers and promote innovation.
CFTC fights for budget, no consensus on new digital assets bill from both parties
The hearing discussed a draft digital assets bill drafted by committee chairman Glenn Thompson and Patrick McHenry, chairman of the House Financial Services Committee. The Thompson-McHenry bill will change the method of defining securities and commodities based on the method of asset trading (whether obtained from the issuer or purchased on an exchange) and the degree of decentralization. The bill will also redefine digital commodity brokers and traders without changing the core components of the market structure.
Thompson said, “We hope that there will be a bipartisan joint committee legislative proposal.” Republican Congressman Dusty Johnson (SD-R) said that there is “uncertainty” about whether digital assets are securities or commodities, and that the bill will help fill those gaps.
Democratic committee members, on the other hand, pointed out that the 162-page bill is “extremely complex,” was only released last week, and will take time to study. CFTC Chairman Rostin Behnam described it as “handcuffing regulators.”
Behnam was not particularly interested in the new bill, but he specifically called on Congress to authorize the CFTC to fill regulatory gaps in digital asset regulation. Behnam said that even if Congress creates a clearer path for digital assets to transition from securities to commodities through new legislation, don’t expect new U.S. encryption rules to be implemented immediately. The CFTC currently has a budget of $360 million and has requested an increase to $410 million for the next fiscal year, while the appropriation committee recommends $345 million. Behnam said that if the budget is cut, the agency will have to furlough employees.
Behnam said, “Implementing new regulatory rules will take at least one to two years, and additional funding from Congress will be needed. I estimate that this may take three to four years.”
Author: BlockingBitpushNews Mary Liu
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