The ceos of six of the largest cryptocurrency companies recently testified in front of u.s politicians. The five-hour long hearing revealed some interesting facts that could have profound effects on the future of cryptocurrency. Today, i’m going to give you a bit of background about the hearing analyze the most important things that were said and what they could all mean for the crypto market: before we head to capitol hill there’s a disclaimer i need to spill financial advice. Is not one of my skills i just entertain and educate without being shill.
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I’Ll just say that, leaving before the end is a little rude so now that you’re in the know, let’s unpack what was said by these politicians and crypto ceos. The hearing i’ll be talking about today was organized by democrat politician, maxine waters, who serves as the chairwoman of the house committee on financial services. Now the house committee on financial services consists of about 50 politicians who are essentially tasked with overseeing the entire financial services industry. In the united states, maxine has been the chairwoman of the house committee on financial services since january 2019 and has organized other high-profile hearings in the past. The most famous of these hearings is the one about facebook’s libra cryptocurrency in october 2019, which featured mark zuckerberg himself.
In june this year, maxine announced the formation of the digital assets working group of democratic members. To quote: examine the issues at hand in the digital asset space. To my understanding, this is the group that was tasked with calling on the ceos of various crypto companies to testify at the recent hearing which took place on december. The 8th the hearing is titled, quote digital assets and the future of finance, understanding the challenges and benefits of financial innovation in the united states and it featured the following: crypto ceos, jeremy alaire, ceo of circle, which issues the usdc stablecoin sam bankman freed, ceo of the Ftx cryptocurrency exchange and owner of some of the world’s most extraordinary hair brian brooks the recently appointed ceo of bitfury, a blockchain and bitcoin mining services, company charles cascarilla, ceo of paxos, which issues the busd usdp and pax g stablecoins danelle dixon, ceo of the stellar development Foundation which coordinates the development of the stellar blockchain and alicia huss, ceo of the coinbase inc cryptocurrency exchange and cfo of coinbase global cryptocurrency exchange. Now coinbase global ceo brian armstrong was invited as well, but decided to send alicia in his place.
Representatives from usdt issuer tether were also invited but did not attend. The hearing began with a series of five-minute opening statements, starting with chairwoman maxine waters. In her opening statement, she implied that this crypto hearing is the first of many to come. She also mentioned that institutions, including some pension funds, have begun investing in crypto and that the economic effect of the pandemic is incentivizing individuals to look for new ways to protect and grow their wealth because of this crypto regulations are required. Next, up was patrick mchenry, who serves as the ranking member of the house committee on financial services.
In case you didn’t know, ranking member is just a fancy term for the most senior member of a committee from the minority party. In this case, the republican party patrick mentioned that cryptocurrency is already regulated and questioned whether the politicians present knew enough about cryptocurrency to propose new regulations. He also highlighted the fact that this is the first hearing exclusively about cryptocurrency and that the politicians present should seek. To quote, listen, learn and ask questions rather than react. Jeremy alaire was then called upon for his opening statement and the most important thing he said in it was that politicians should be quote aggressively.
Promoting the dollar as the currency of the internet via stable coins such as usdc. This is simply because it will be the only way for the us dollar to retain its global reserve currency status, and that’s a talking point that seems to have caught the attention of the politicians in the room. Sam bankman freed was the second ceo to take the stand now. Interestingly, sam focused on the value propositions of cryptocurrency, namely financial inclusion. He also said that he supports reasonable crypto regulation.
On that note, it’s worth pointing out that sam was the second largest donor to joe biden’s presidential campaign in 2020. In an interview with vox earlier this year, sam said that he hopes the donation will put him on the radar. If the biden administration is quote ever looking for like an expert on crypto regulation, it should come as no surprise, then that ftx released its regulatory recommendations for cryptocurrency a few days prior to the hearing, and these were referenced by politicians. During the hearing on multiple occasions. Politicians also referenced the regulatory recommendations for cryptocurrency, published by coinbase in october, recall that ceo brian armstrong went to washington to talk to politicians earlier this year.
The next ceo to take the stand was brian brooks and if that name sounds familiar, it’s because brian was the ceo of binance us for a brief period. Earlier this year. Brian is also the former acting comptroller of the currency used to work at the federal deposit, insurance, corporation or fdic, and even served as coinbase’s chief legal officer. Quite the cv he’s got going on there now, even though brian has only been the ceo of bitfury since october. His opening statement sounded like he’d, been with the company since his birth, which is pretty impressive.
Now the fact that almost every politician in the room knew him on a first name basis and said it was great to see him again before they each started. Asking him questions probably helped too. Besides bit fury brian opined on the lack of regulatory clarity for cryptocurrency. During his opening statement, specifically when it comes to assessing which cryptocurrencies are securities, he also said that cryptocurrency improves the financial system and, although it does introduce new risks, it eliminates old and more serious risks which he saw during his time at the fdic. Charles cascaria took a similar tone in his opening statement, saying that his two decades on wall street exposed the many shortcomings of the current financial system like sam charles focused on banking, the unbanked and dropped a statistic so crazy.
I had to fact check it myself. That is that 18 of americans are underbanked or unbanked. Now it turns out that the actual figure is nineteen percent, but only five percent are unbanked. The rest are underbanked, which seems to mean that they just don’t interact with the traditional banking system and use other intermediaries. Such as paypal and venmo instead now charles believes, this dismal statistic is ultimately due to the biases of financial institutions and intermediaries, which don’t exist in cryptocurrency danelle dixon dialed it down a bit by talking about stella’s decentralization and how it’s not controlled by the stellar development Foundation, something that suggests stella might be raising some eyebrows at the sec.
She also shield usdc and called for politicians to make it clear that stable coins are not securities, something that’s not surprising, given stella’s recent partnership with moneygram to use usdc for remittances, alicia haas did some shilling of her own and dropped some more crazy. Crypto statistics about coinbase, namely that it has 73 million individual customers, 10 000 institutional customers and holds 12 of all the cryptocurrency in circulation like of every kind. She also pointed out something very important and that’s that half of coinbase’s users are doing more than just buying and selling crypto, suggesting that the industry is moving out of its investment phase and into its utility phase. Alicia underscored the importance of nfts dapps and the metaverse in this utility phase, and i couldn’t agree more now. If you want to learn more about the metaverse, be sure to check out my recent video about it, using the link in the top right after everyone gave their opening statements, the questions began.
Every single politician present was given five minutes to ask the six crypto ceos as many questions as they could. So here are the ones that stuck out to me. Maxine waters asked charles about paxos’s partnership with facebook’s novi to pilot remittance payments with the usdp stablecoin. Charles basically responded by saying that novi is just another client and that maxine should contact novi for additional details about the remittance pilot. What’S interesting is that whatsapp announced that it would be piloting peer-to-peer payments with usdp using novi in the united states at around the same time charles was getting grilled now when i saw this news, i made sure to listen closely for anything said during the hearing which Sent a signal that this was okay, given how much politicians pushed back on the remittance pilot when it was announced.
I must admit that i didn’t hear anything to that effect and it’s odd that no politicians have pushed back against whatsapp. Yet patrick mchenry went next and he spent his time asking brian brooks about the importance of web 3, an exchange which subsequently went viral on youtube. It’S in the description. If you’re interested democrat politician, carolyn maloney asked alicia huss about how crypto exchanges who refused to follow the fat f’s guidelines could be forced to comply because quote a single weak link exposes the entire system. Unfortunately, carolyn’s time ran out before alicia could answer more about the fatif’s crypto recommendations in the description.
Anne wagner was the next republican politician to take the floor and she asked all the ceos about how cryptocurrencies could be used to bank the unbanked. Now the answers here were predictable and the only one which caught my ear was from jeremy alaire, because he noted that usdc is a digital dollar with the throughput of visa. A not so subtle reference to solana, democrat politician, nadia velasquez, then battered jeremy and charles about the assets backing the stable coins. Their companies issue charles managed to stay in the clear, because paxos stable coins have always been backed by cash and government. Debt as paxos is a heavily regulated trust company jeremy, on the other hand, got jammed up by the question about why circle changed the assets backing usdc.
For those who don’t know, usdc was partially backed by less than optimal assets. Until very recently, republican politician, frank lucas followed up with his own questions about stablecoins, most of which were directed to brian brooks of all people. This is probably because brian brooks has experience working with banks through the fdic, and his experience tells him that stable coin issuers are safer than banks, because all they do is payments, they don’t trade or lend out assets behind the scenes. The same way banks do most of them anyways. Meanwhile, democrat politician, al green mentioned the volatility of cryptocurrency before asking brian, when we should start to worry.
If cryptocurrency is in a bubble, brian answered by saying that crypto’s volatility is being caused by a combination of the fact that it’s an emerging technology and the relative lack of liquidity of its various coins and tokens brian believes that this would be solved if the sec Approved a spot bitcoin etf, while simultaneously saying that 80 percent of btc holders are hodlers. This is paradoxical, because a spot, bitcoin etf would increase volatility under these conditions. Look no further than the low balance of btc on exchanges. For evidence of that. A similar paradox was present in alicia’s answer to a question by republican politician pete sessions, who asked how coinbase assesses the assets on its exchange prior to listing in this and other answers.
Alicia said that they do their due diligence on the founders of the project. Look for evidence of organic adoption and do on-chain analysis to ensure the project is not associated with anything below board. Now i must say i have my doubts about this, because coinbase has listed a few cryptocurrencies that not only might be securities but also have some very shady histories. I won’t say which ones for obvious reasons. Republican politician, blaine lueckemeier, then brought up a question that was asked indirectly by almost every other politician present.
How do we ensure the us dollar remains? The world’s reserve currency brian began by saying that the amount of dollars held by foreign central banks is declining and this is likely to accelerate because of all the inflation we’ve seen over the last decade and especially over the last year. Naturally, the solution is us dollar, stable coins and jeremy started to reiterate that usdc could make the dollar the currency of the internet before blaine cut him off to ask brian another question. It was quite funny actually democrat politician, ed perlmutter, posed a similarly important question to sam bankman freed about the threat quantum computing poses to cryptocurrency sam answered by saying that this ultimately depends on what quantum computing becomes and that cryptocurrency blockchains can be built to withstand, or Even benefit from quantum computing republican politician, andy barr hit home when he asked brian about whether there needs to be more clarity around crypto regulations. Brian obviously answered yes, and he said that the howie test used to determine whether a cryptocurrency is a security is akin to setting the speed limit for truck drivers based on their diet and how well they slept the night before a seriously good analogy.
If you ask me, andy also asked jeremy about the difference between stable coins and cbdc’s jeremy pointed out as part of his answer that stablecoins are winning the digital fiat currency race and are growing faster than china’s digital yuan. This makes stablecoins a strategic priority for the united states. I was caught off guard by comments made by democrat politician, sean caston, who seemed to imply that stable coins were no different from etfs. I was also caught off guard by comments made by republican politician warren davidson, who had apparently devised a new type of howey test for crypto assets. With the help of crypto ceos democrat politician, richie torres tested, brian’s broad knowledge by asking how the law can be enforced on technologies that have no central authority against which those laws could be enforced.
This sounds like it falls under the governance part of esg, as it relates to cryptocurrency something i covered extensively in another video which you can find up there in the top right. Anyways brian answered by saying that regulatory clarity is a better place to start than enforcement. Richie concluded with a comment that dollar-backed stablecoins could very well reinforce, rather than challenge the dollar status as a reserve currency republican politician bill husenga echoed this sentiment before, suggesting that some cryptocurrency exchanges seem to be pushing regulations as a way of preventing smaller players from entering The industry, as you might have guessed his questions, were directed to sam and alicia. On the other side of the aisle democrat politician, al lawson asked about the anti-crypto provisions in the infrastructure bill which recently passed for those who don’t know the infrastructure bill requires poorly defined cryptocurrency brokers to collect kyc on their users for tax purposes. It’S worded in such a way that it could potentially apply to validators miners and even crypto wallet providers.
Brian basically answered by saying that these provisions are, and the other ceos responded in kind to similar questions about the infrastructure bill later in the hearing. Al also asked alicia about coinbase’s products and services, and she said that coinbase doesn’t charge any fees to withdraw from its exchange, which is clearly false. As far as i’m concerned, technicalities about gas fees – i suppose republican politician, french hill and yes, that’s his real name, asked brian about whether self-custodial cryptocurrency wallets should be connected to banks, as suggested by the pwg report. Brian responded by saying that, if this were to happen, it would make cryptocurrency no different to the current financial system. More about the importance of cryptocurrency custody in the description democrat politician bill foster then came in like a wrecking ball when he asked the crypto ceos, whether every cryptocurrency transaction should be associated with a real world identity.
He asked it in such a way where not replying would mean passive agreement and when no ceo raised their voice bill proclaimed that the verdict is in a bit concerning to say the least. Bill then went on to suggest taxation by the irs at the protocol level. For cryptocurrencies, which is completely insane, then you remember that bill is the same politician who said that the government must have the power to reverse crypto transactions back in june, jeremy was the only ceo brave enough to chime in by saying that bill should consider finding a Middle ground, with these suggestions and emphasized that the crypto industry is currently working to create decentralized, digital identities, where users own their data and not a corporation or the government. Now you should be aware that bill is the co-chair of the house’s blockchain caucus, which means that some of his outlandish ideas could become law. Let’S hope that doesn’t happen.
Democrat politician, brad sherman took bill’s rhetoric to the next level by saying that crypto is backed by big banks and wall street before hitting the crypto ceos with a sharp set of rapid fire questions which they answered. Pretty skillfully democrat politician, cindy axne came in with a similar edge, but her questions related to reasonable consumer protection. Something she’s passionate about, given that her son is itching to invest in crypto. Sam and alicia assured her that crypto offers sufficient consumer protections but suggested that her son stay away from coins. No, they didn’t actually say that second part, but if cindy wants to give her son a guide to avoiding these, i happen to have one anywho republican politician, alex mooney and democrat politician.
Josh gottheimer then pressed the crypto ceos about the use of cryptocurrencies by terrorist organizations and rogue countries like cuba. They replied by saying that they perform kyc on all their customers, and brian explained that chain analysis has tools to track down where a crypto holder is even, if they’re, using a vpn, now i’ll be doing a deep dive into these crypto tracking companies soon. So do stay tuned for that these solutions seem to be unsatisfactory. For democrat politician, stephen lynch, who wants all unhosted aka self-custodial cryptocurrency, wallets to be identified to authorities stephen asked jeremy, why he was opposed to this kind of blatant overreach and jeremy responded by saying that it’s because it’s blatant overreach, albeit in a much nicer manner, jeremy. Also said that there was no request for public comment about implementing such a policy and again repeated that the crypto industry is in the process of creating robust decentralized digital identities.
You can learn more about the importance of decentralized digital identities and how they work by using the link up there in the top right anyhow, democrat politician, alexandria, ocasio-cortez jumped jeremy with a juicy question about what would happen to the crypto market. If stable coins suddenly disappeared, jeremy didn’t give a straight answer, and that’s probably because he knows as well as anyone else that it would be a disaster. Aoc then asked jeremy whether cryptocurrency is just an extension of the current financial system, and his answer was no good answer. Democrat politician, rashida taleb reigned on the parade by pushing faulty statistics about bitcoin’s energy use like how a single bitcoin transaction uses more power than a house does in a month. You can learn why that’s bs by checking out my video about crypto mining and climate change.
In the description, i digress, rashida directed her climate related questions to danelle, who began by admitting she’s, not all that familiar with the details of how bitcoin works before putting stella in the spotlight as a more eco-friendly solution. Rashida, followed up by saying that the quote proof-of-work model is incompatible with the environmental future and asked inel how we can phase out proof-of-work mining to avert the climate crisis. Danelle touched on the trade-offs of proof-of-work mining and stopped short of saying that there are ways to do crypto-mining in an environmentally friendly way. As part of her response, republican politician john rose revived the mood by asking brian how he would regulate cryptocurrencies if he was king for a day with a smirk on his face and a twinkle in his eye, brian answered that he would make sure any crypto currencies That the sec believes to be securities would have a way of listing on regular exchanges in the united states. Specifically xrp democrat politician, madeleine dean turned back the clock to address cryptocurrency’s volatility and asked brian.
Whether cryptocurrency is in a bubble brian answered by saying that the crypto market is in the same place, the stock market was when it was first getting started 100 years ago. An answer that madeleine and many other politicians appeared to approve of republican politician. Brian stale took his turn by asking alicia whether the sec had provided any clarification to coinbase as to why it had blocked its savings product. Earlier this year, alicia said no, which is ridiculous. No wonder.
Crypto companies are opting to set up shop overseas. Republican politician van taylor was the last one to stake his claim. After noting that it’s clear cryptocurrency is regulated. He asked one simple question of the crypto personnel present. Do you feel unregulated the room erupted with laughter and maxine wrapped things up by saying that politicians had five more days to ask more questions to which the crypto ceos will respond in writing.
Now i wasn’t able to find any of these questions and answers, but i reckon we have everything we need to understand what this hearing means for cryptocurrency. The hearing seems to be a sort of response to the crypto report published by the president’s working group on financial markets back in november. In this report, the pwg passed the hot potato of crypto regulation to politicians and warned that the pwg would step in to crack down on the crypto market. If politicians didn’t act on its recommendations, the fact that they stepped in with this hearing says a lot and it’s clear that the number one concern of u.s politicians when it comes to cryptocurrency is the status of the us dollar as the world’s reserve currency.
Many politicians see cryptocurrency stablecoins as a threat to this status quo, and i suspect these concerns have their roots in facebook’s libra stablecoin. This is because libra was originally designed to literally be its own currency, a stablecoin, backed by a basket of fiat currencies, but not pegged to any one of them. Such a stablecoin would obviously be a threat to the dominance of the us dollar. The thing is that stablecoins, like usdc, usdp and busd, are pegged to the dollar and also backed by dollars and u.s treasuries aka government debt.
If you watch the whole hearing, you’ll know that the politicians present were pleasantly surprised to hear this, which suggests they didn’t know that cryptocurrency stable coins are different from other stable coins. This is further evidenced in the questions asked by maxine waters and a handful of other politicians earlier in the hearing, which implied that cryptocurrency stable coins could threaten the reserve currency status of the u.s dollar. Another common theme is compliance and from where i’m standing it looks like the desire for control in that department is stronger among democrats than republicans. Now i hate to talk politics, but this is really something i need to point out, because democrats currently hold most of the political power in the united states.
This means that they could easily pass anti-crypto regulation, and some would argue that this is what was already done with the infrastructure bill. That said, the hearing revealed that politicians seem to be on the same page when it comes to cryptocurrency, especially the ones who understand what it is and how it works. While there are a few extreme outliers, the consensus that cryptocurrency is good for society exists on both sides of the aisle, and this is despite the political divide, we’re seeing in the united states and elsewhere with some luck. The result of this hearing and others will be reasonable, crypto regulations that will pave the way for mass adoption of cryptocurrency. So if you happen to be the kind of person who contacts their congressman be sure to send them my video about the basics of cryptocurrency to make sure they don’t mess this up, that’s up there in the top right, and that’s all for my analysis of the Recent hearing of crypto ceos, if you enjoyed the video hitting that like button, is the best way to let me know remember to subscribe to the channel and ping that notification bell before you go.
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