Bitcoin (and cryptocurrencies) can inspire extreme passion among the technology’s proponents and opponents. An example of this was Facebook’s Libra Senate hearings on July 16th. Lawmakers fulminated against Facebook and Libra as the cryptocurrency’s chief David Marcus attempted to dodge their angry barbs.
But yesterday’s Senate hearing was a marked contrast to the Libra debacle. Its tone was relatively subdued and, for the most part, participants agreed on the benefits and advantages of blockchain and cryptocurrency technology to reinvent finance.
An Uncertain Regulation and Role
Still the regulatory uncertainty relating to cryptocurrencies loomed large on the hearing’s contents. “The application of laws that do not contemplate digital assets has led to the loss of significant opportunity,” said Jeremy Allaire, CEO of Circle – a crypto-based payments service.
As example, he pointed to Circle’s crypto exchange Poloniex which was forced to relocate to Bermuda for continued operations because it could not operate in the US due to existing securities laws.
Allaire also brought up the topic of the SEC’s continued insistence on the Howey Test as criteria for determining whether an ICO token is a security or not. “Unfortunately, the SEC’s guidance is extremely narrow,” he said. According to him, the US Congress should consider new laws that include digital assets. When asked about the specifics of a new regulatory agency for digital assets, however, Allaire demurred.
Cryptocurrency and blockchain enthusiasts often point to low fees its role in helping the underbanked and unbanked access financial services, Mehrsa Baradaran, professor of law at UC Irvine and author of a book on the subject, added nuance to this conversation. She said it wasn’t fancy technology that led to unbanked and underbanked populations; it was “banking deserts” or regions without access to banks.
According to her, conversation about the benefits of blockchain technology in markets was a “red herring”. “What matters are the risks that undergird it (the technology),” she said. “There’s nothing about the blockchain that diminishes these risks.” Those risks are similar to the ones for money market instruments, which were pegged to fiat currencies like Facebook’s Libra. The financial crisis of 2008, however, exposed a hole in their working and ended taking down a substantial portion of the financial ecosystem.