US House Committee Debates Digital Asset Regulation

Members of the United States House Financial Services Committee met to discuss clarity for the digital asset ecosystem, with some citing the Securities and Exchange Commission’s (SEC) recent legal action against cryptocurrency firms.

During a committee hearing on June 13, ranking member Maxine Waters stated that Democrats were taking a “serious and thoughtful look” at a Republican framework proposal for regulating digital assets.

Patrick McHenry, chairman of the committee, said he anticipated bipartisan input on a draft measure, with markups following the July recess.

Without exhaustive analyses and collaboration between the two political parties, Waters suggested, the digital asset legislation could open the door to potential fraud and misuse of customer funds.

Representatives from California cited the collapse of FTX, the criminal accusations against former CEO Sam Bankman-Fried, and the SEC’s recent actions against Binance and Coinbase.

“I am especially concerned that the Republican bill would allow crypto firms currently being sued for violating our securities laws to continue operating under provisional registration,” said Waters.

“The measure appears to prohibit the SEC from taking any enforcement actions against crypto firms, even if they have committed fraud.

This provisional registration could provide bad actors with a “get out of jail free” card, allowing them to continue harming consumers and investors.

The draft legislation introduced on June 2 would prohibit the SEC from denying digital asset trading platforms registration as a regulated alternative trading system.

It would permit these firms to offer “digital commodities and payment stablecoins.” It would also restructure the responsibilities of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in regulating digital assets in the United States.

Aaron Kaplan, co-founder and co-CEO of Prometheum, stated during the hearing, “The American public was left holding the bag when it came to FTX and the violations, or alleged violations, involving Binance and Coinbase.”

Applying federal securities laws [through the SEC] is the most straightforward and logical path forward.

Other legislators have responded differently to the SEC’s apparent regulation-by-enforcement strategy. On June 12, Ohio Representative Warren Davidson, a Republican member of the House Financial Services Committee, proposed legislation to remove SEC chairman Gary Gensler and restructure the commission’s authority.

This action’s legality is ambiguous.

In response to the SEC litigation, Binance.US has resisted the commission’s efforts to freeze its funds.

At the time of publication, a federal judge in the District of Columbia was weighing competing motions from the SEC, Binance, and Binance.US regarding how to manage the assets, as well as other pending legal actions.