“We want to make sure that we effectively do no harm.”
WASHINGTON, DC – With cash falling by the wayside and electronic transactions increasingly becoming the norm, The Ripon Society held a breakfast discussion yesterday with two Members of Congress who are working to put in place a regulatory framework to govern cryptocurrency and other digital assets. The two Members were U.S. Reps. French Hill (AR-2) and Dusty Johnson (SD-AL).
Hill serves as Chairman of the Financial Services Subcommittee on Digital Assets, while Johnson serves as Chairman of the Agriculture Subcommittee on Commodity Markets and Digital Assets. Together, they are leading an effort to establish a framework that governs digital transactions in a way that encourages competition without stifling the innovation that has fueled the growth of the internet – and American economy – over the past 25 years.
“We’ve lost the forest for some individual trees in this digital asset debate,” Hill said in remarks to kick off the discussion. “Web 3.0, distributed ledgers, blockchain — this is the future of what we think of as Web 1.0. If we’d had this conversation in the 90s that we’re having now, I don’t know what our GDP would be. Because in 1996, the Congress did two very important things. They passed the Telecommunications Act, which gave you your cellular and digital and texting services competitively that you have today, combined with essentially the breakup of AT&T. And they gave you a little-known resolution that Dusty is working on revising, which was former member and former chairman of the SEC Chris Cox’s resolution about the internet.”
“What Congressman Cox was saying [with his resolution] is, ‘We’re going to do no harm here. We’re not going to step in and meddle with the internet. We’re not going to tax the internet. We’re not going to regulate the internet. We’re going to tax and regulate the activities that people do in the private sector using the internet. And we don’t want to screw this up. We don’t even know what it’ll do. And it says that in the resolution.”
According to Hill, a similar spirit is guiding the effort that he and Johnson are leading today.
“We want to make sure that we effectively do no harm,” he stated, “that we craft a regulatory framework that facilitates American innovation, American entrepreneurs, American academics, American consumers, American investors, all to participate in the future of this thing called Web 3.0 and the use of distributed ledgers. That’s all we’re talking about. And we’re going to do it in a way where consumers are protected, investors are clear on what they’re investing in, and that bad actors don’t get the run of the country.”
Johnson concurred, and opened his remarks by touching not only on the cross-jurisdictional nature of the effort he and Hill are heading up in Congress, but two of the federal agencies – the Commodities Futures Trading Corporation and the Securities and Exchange Commission – that have jurisdiction over the issue, as well.
“People are often surprised that agriculture has as large a role in this as we do,” the South Dakota lawmaker stated. “The CFTC is the cop on the beat for the American futures market derivatives. And the CFTC is jurisdictional to ag. And when we look at cryptocurrency, somewhere between 70% and 80% of the digital tokens that are already out there by market cap are viewed by most everybody as commodities, meaning that they are jurisdictional to the CFTC and not to the SEC. That being said, I think we need that SEC cop on the beat.
“Maybe the big boys like Bitcoin and almost certainly Ether function as commodities today. But in an innovative space where you have people trying to build something special, that does feel a lot more like buying stock in a company than it does buying an ounce of gold. And one of the major challenges that we will have as we put the finishing touches on the legislation we’re doing together is trying to figure out when does something graduate to big boy status. In the early innovative days, that feels like we need SEC protections, as it is just a commodity. When is the CFTC the more appropriate regulator? I think we’re getting really close. Decentralization seems like the right trigger, and we’re putting some meat on the bones about what constitutes sufficient decentralization.”
Johnson noted that he and Hill also hope to fill an important regulatory gap that currently exists in the spot market.
“In most commodities,” he observed, you don’t need a spot market regulator. If you want to go down to a retail store and buy an ounce of gold, the CFTC doesn’t regulate that. If you want to buy grain person to person, the CFTC doesn’t regulate that. Now, they do have some enforcement ability over fraud and abuse and some of the market-distorting activities. But there’s not regulatory authority. They don’t set the rules of the road. Almost everybody that we have had testify in front of either of our committees understands that kind of Laissez-faire approach probably doesn’t work for the digital asset space … You can’t really afford to just let the State Attorney General or the county attorney do that work.
“So I think we will have the CFTC be the cop on the beat for that spot market business. And by the way, industry understands that what French and I have been talking about will make it more likely that they can invest here, make it more likely that they can innovate here, and make it more likely that America will regain its position as the primary home to great blockchain technology development.”
Following their remarks, Hill and Johnson were asked a number of questions, including one about the President and the approach his Administration is taking to creating a regulatory framework for digital assets.
“I think President Biden recognizes the importance of the digital assets arena and the lack of a framework,” Hill said. “They put together a presidential working group on digital assets. I don’t agree with everything that was written in their presidential working group reports or the executive order. But the point is that they did demonstrate that they’re interested in this arena. And we found that to be true last summer when Maxine Waters and Patrick McHenry began working on the first of several pieces of legislation here, which is a stablecoins bill to actually put stable in stablecoin. The Treasury and the Federal Reserve were very cooperative there in providing technical assistance, along with other bank regulators.
“We only have one regulator that’s sort of out of step in this process right now, and that’s the SEC. Gary Gensler prided himself during his confirmation hearings that he taught a blockchain course at MIT. And then he impressed on all of us as he was sworn into office that he is the cop on the beat and that nothing happens without his careful touch in oversight. Well, a trillion dollars in losses later and a bunch of lawsuits later, we don’t have a lot of leadership out of the SEC. We need that in order to ultimately be successful here. And we hope the Administration can bring Chairman Gensler into the fold on the need for a regulatory framework.”
Johnson agreed.
“Gensler is the biggest problem,” he stated bluntly. “Commissioner Peirce is very reasonable. She’s got more of a libertarian bent. I think she understands that we do want to create some space for innovation that a Gary Gensler regulatory regime would not. French is right — the CFTC, they’re really squared away regulators. They really understand the concepts. They really understand their principles-based regime that they operate under and how that could well serve crypto. And they are, I think, quite effective when they come to the Hill and talk.”
In addition to being asked about their work to create a regulatory framework for digital assets, the two lawmakers were also asked about another top priority facing Congress this month – raising the debt limit and getting spending under control.
“Yesterday was a very good day,” Johnson said, referring to the meeting that was held Tuesday at the White House between the President and Congressional leaders. “There weren’t any breakthroughs other than structure. I think having Shalanda [Young] and [Steve] Riccetti be Biden’s people is exceptionally good news. I think having Garrett Graves and Brittan [Specht] be McCarthy’s people is exceptionally good news. And then, frankly, more important than all of that is kicking Schumer out of the room. It was really important for the President to do that.
“Schumer has been nothing more than an intransigent blocker of progress. He really thinks he can jam us. It shows how little Chuck Schumer understands the Republican House. We’ve been remarkably united. Listen, there are some more colorful elements of the Conference that simply will not in any way ever be pushed around by this White House. Frankly, I would put myself among their number in this regard. Inaction is not a strategy for dealing with a $32 trillion debt. And I think Chuck Schumer is beginning to understand the resilience and the resoluteness of the House Republicans. More importantly, the President does. Kicking Schumer out of the room was a big deal.”
Hill echoed Johnson’s remarks.
“I think Joe Biden has taken his lead from Chuck Schumer,” he said, “and the Majority Leader in the Senate is wrong in this case. He’s fighting yesterday’s war. And he’s got the Democratic President, and he’s got a split Senate with no votes, and he’s got no 60 votes. So he’s way overplayed his hand. I think he convinced the Biden Administration early on that McCarthy couldn’t get it done. And McCarthy has a very time-tested strategy. Kevin McCarthy is a much better, much more effective, and will be a much more successful speaker because he went those 15 rounds the first week of January. That process seared a bonding nature inside our Conference like I’ve never seen.”
To view the remarks of Hill and Johnson at yesterday’s breakfast discussion, please click the link below:
The Ripon Society is a public policy organization that was founded in 1962 and takes its name from the town where the Republican Party was born in 1854 – Ripon, Wisconsin. One of the main goals of The Ripon Society is to promote the ideas and principles that have made America great and contributed to the GOP’s success. These ideas include keeping our nation secure, keeping taxes low and having a federal government that is smaller, smarter and more accountable to the people.