Three major hearings in the U.S. Congress today: Cryptocurrency regulation is imminent

Today, the U.S. Congress held three hearings simultaneously on cryptocurrencies to discuss the different uses of cryptocurrencies.

The Senate Judiciary Committee held a hearing on ransomware, the Senate Banking Committee held a hearing on the uses of cryptocurrency, and the House Financial Services Committee held a hearing on central bank digital currencies. We saw three hearings on different aspects of the crypto industry at the same time, which shows how seriously Congress is taking this space.

During a hearing of the Senate Banking Committee, Sen. Elizabeth Warren (D-MA) warned of the potential dangers of blockchain technology.

The hearing was titled “Cryptocurrencies: What Use Are They?” Warren commented: “All the warning signs are flashing [in the crypto market], the hype, the volatility, the crazy claims are all proving wrong. As the crypto market grows, the risks to our financial stability and the economy are also increasing.”

Warren believes that encryption is not absolutely decentralized or disintermediated, most of the wealth is still concentrated, and the largest companies and mining pools have ways to control the system. She said: "Unlike our financial system which is controlled by large banks, cryptocurrencies put the financial system under the control of some shadowy, faceless groups of super programmers and miners, and I don't think this is a good thing."

Warren and other senators have also attacked some of the rhetoric surrounding cryptocurrencies, casting the promise of expanded financial inclusion as false advertising by companies. Sen. Sherrod Brown (D-OH) called it “fake populist” marketing.

Sen. Sherrod Brown (D-Ohio) said at a Senate hearing on ransomware that the growth of cryptocurrencies could endanger American consumers and financial stability, portraying the crypto industry as a fraud-ridden, accountable digital slot machine that can make its creators rich but destroy everyone else.

“There is nothing democratic or transparent about a shady, proliferating web of cyber tokens,” he said, calling for “smart regulations” to protect consumers from cryptocurrency “extortionists” and their “false populist marketing.”

House lawmakers debated central bank digital currencies (CBDCs) while senators grappled with a wave of ransomware, in a sign of the growing influence of cryptocurrencies in monetary policy and cybercrime.

Democrats on the Banking Committee said the impact should be suppressed. Republicans, led by Senator Pat Toomey, who has invested in cryptocurrencies, were slightly more cautious. Toomey acknowledged that "concerns about cryptocurrencies are legitimate," but showed the benefits of blockchain technology.

Angela Walch, a professor at Saint Mary's School of Law in San Antonio, described cryptocurrency as an unregulated time bomb that would wreak havoc on traditional financial payment systems.

Minnesota Democratic Senator Tina Smith said that most decentralized finance (DeFi) derivatives instruments violate U.S. commodity laws, a view echoed by Commodity Futures Trading Commission (CFTC) Commissioner Dan Berkovitz. Smith pointed out Bitcoin’s large carbon footprint and refuted the argument that cryptocurrencies can be green.

During a Senate Judiciary Committee hearing on preventing and responding to ransomware attacks, U.S. senators, along with some representatives from federal agencies, spoke about the role of cryptocurrencies in ransomware attacks.

In his opening remarks, Chuck Grassley (R-IA) said cryptocurrencies are difficult to track.

Richard Downing of the U.S. Department of Justice claimed that privacy coins and the Tor network make it difficult to identify cybercriminals:

“Many of these crimes involve anonymization technologies, such as the Tor network and anonymity-enhancing cryptocurrencies, which make it difficult to identify the perpetrators.”

He later added that cryptocurrencies were driving the rise in crime and that strengthening the Justice Department’s powers to track cryptocurrencies was also “under consideration.”

Jeremy Sheridan of the U.S. Secret Service said that cryptocurrencies have led to the growing illicit profitability of ransomware attacks, but also make it easier to track ransomware payments because they have on-chain traceability.

At a hearing of the U.S. House of Representatives National Security, International Development, and Monetary Policy Subcommittee on the theme of “The Promise and Dangers of Central Bank Digital Currency (CBDC),” U.S. lawmakers expressed concerns about the slow progress of the digital dollar. Senators asked how much harm the United States would cause by delaying the digital dollar and which elements of the project would benefit from public action or private sector solutions.

Reps. Jim Himes (D-CT) and Andy Barr (R-KY) both opened their remarks with concerns about “inaction,” with Himes worrying that the U.S. will lose its “ability to lead and innovate” in the CBDC space if it continues to delay.

Robert Baldwin, head of policy at the Digital Asset Markets Association, is less concerned, arguing that privacy concerns and a lack of capital controls on Chinese products could make the dollar more attractive by comparison.