Rep. Warren Davidson, R-Ohio
Nearly 50 representatives from U.S. financial giants and cryptocurrency startups are set to meet with Washington lawmakers this week to talk through what some say is an incomplete and murky regulatory landscape.
Rep. Warren Davidson, R-Ohio, is hosting a roundtable, "Legislating Certainty for Cryptocurrencies," on Tuesday and asking industry experts to weigh in on how to police the new asset class ahead of a House bill he plans to introduce this fall.
"Your input is critical to helping us preempt a heavy-handed regulatory approach that could stall innovation and kill the U.S. ICO market," Davidson said in a letter to invitees.
The congressman outlined a list of eight questions for the meeting, including: "What is the best way to protect consumers from fraud?" The meeting will also cover private funding disclosures and token issuance laws, a spokesperson for Davidson said.
Representatives from Fidelity, State Street, leading venture capital firms Union Square Ventures and Andreessen Horowitz, the Nasdaq, and the U.S. Chamber of Commerce are among those confirmed to attend, according to an attendee list seen by CNBC. Cryptocurrency startups Ripple, Coinbase and Circle are also planning to be in the room.
Reps. Ted Budd, R-N.C., Tom Emmer, R-Minn., French Hill, R-Ark., and Darren Soto, D-Fla., are set to give opening remarks during the roundtable Tuesday.
The crowdfunding process known as an initial coin offering, or ICO, caught the attention of regulators after bitcoin surged to almost $20,000 last year. Other, smaller cryptocurrencies also attracted floods of retail investors, bringing a total of $12 billion in funding this year alone, according to the latest estimates from data firm Autonomous Next.
U.S. financial watchdogs have been balancing consumer protection and innovation in the multibillion-dollar market. Still, crypto industry leaders have complained that laws need to be updated to accommodate the complex new digital asset class. Davidson's bill would be the first of its kind in Congress.
While Congress has yet to address the fundraising craze, the Securities and Exchange Commission has cracked down this year. Chairman Jay Clayton made it clear that he will not look to update securities laws to cater to crypto. Other top SEC officials have said ether and bitcoin are not securities, but Clayton and othershave said that other initial coin offerings should be treated as securities and fall under SEC jurisdiction.
For now, the Securities and Exchange Commission follows the "Howey Test" to determine whether or not an asset is a security. The ruling comes from a 1946 U.S. Supreme Court case that classifies a security as an investment of money in a common enterprise, in which the investor expects profits primarily from others' efforts.
Crypto concerns
Bitcoin and other cryptocurrencies are often described as anonymous because people don't need to give any identifying information to send or receive them. While transactions are recorded on a public ledger, they're listed under an alphanumeric code known as a "public key," which doesn't reveal the trader's identity.
Legislators have been especially vocal about criminals abusing that anonymity. Rep. Brad Sherman, D-Calif., was among those with a litany of concerns at a House Financial Services subcommittee hearing in March. He and others brought up the potential for terrorist financing and for skirting "know your customer" laws and money transmission standards that exist for state-backed currencies.
Pat Berarducci, a lawyer for blockchain software technology company ConsenSys, said most industry participants want to achieve the same goals as regulators. He compared the fast-paced innovation and the legal uncertainty to the early dot-com years.
"There are a lot of regulators wanting the U.S. to develop 'do no harm' policies to allow innovation to grow, just like they did in the internet era," said Berarducci, who is attending the roundtable Tuesday.
Since bitcoin and other cryptocurrencies are not backed by a government, founders have fewer constraints on where to start their projects. One fear is that if the U.S. cracks down too hard, founders will flock to less restrictive jurisdictions such as Switzerland or Malta.
"Businesses and entrepreneurs are making decisions about where to locate and grow based on regulatory considerations," Berarducci said. "Policymakers are trying to foster innovation [and] at the same time protect consumers."
The cryptocurrency market has struggled this year compared with 2017. Bitcoin, the world's largest cryptocurrency, has fallen by 50 percent since January, and the market capitalization of all cryptocurrency is down by roughly 65 percent, according to data from CoinMarketCap.com.
