The Subcommittee on Capital Markets, Securities, and Investment considered the major questions associated with cryptocurrency and Initial Coin Offerings (ICO) in a recent hearing entitled “Examining Cryptocurrencies and ICO Markets” that took place in Washington DC on March 14.
At the hearing, the Subcommittee discussed ICOs and cryptocurrency, the potential benefits for the economy, provision of legal support to its investors, and the development of a regulatory approach applied by the appropriate US regulatory bodies.
In his testimony, Mike Lempres, Chief Legal and Risk Officer at Coinbase wallet and cryptocurrency exchange, stated that the power of the digital currency’s technology can transform “capital formation, innovation and economy,” saying that its “tremendous potential” can be only achieved through “responsible regulation.”
However, at the current stage, the US regulatory system “is harming healthy innovation” due to a lack of understanding of what should be allowed and what should be not, and how digital assets should be considered; either as securities, commodities, property, or money.
“There is so much uncertainty about the definition of a security and the scope of regulatory control that the market is being chilled. This is bad for everyone because the technology won’t stop — it will simply move overseas and we will miss out on the opportunity to cultivate the benefits in the U.S.”
For Lempres, the goal is to ensure that potential benefits from new technology are not harmed by uncertainty resulting from "regulatory or legal missteps.” Lempres provided a short review of the main US regulatory bodies such as the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Internal Revenue Service (IRS), the Financial Crimes Enforcement Network (FinCEN), and Federal Trade Commission (FTC)
According to Lempres, the SEC, which is in charge of securities transactions, considers crypto as securities, while the CFTC who fully controls commodity derivatives transactions, claims that tokens are commodities. FinCEN has full authority for Know Your Customer (KYC) and Anti-Money Laundering (AML) matters, and considers tokens to be money. Meanwhile, according to the IRS, the digital coins should be considered as property for tax treatment. According to Lempres, this constitutes an extreme “lack of coordination.”
Answering a question from the Subcommittee chairman Rep. Bill Huizenga, Lempres stated that Coinbase cannot start supporting ICOs until the necessary regulations are adopted.
“We do not support any [ICO] at the current time because we are not sure what the regulatory [treatment] is… We are waiting for the dust to settle between the CFTC and SEC before we electively engage on supporting ICOs.”