Hi investors, today we're talking about the hearing which was held on March 14, 2018 before the House Financial Committee of the U.S. Congress.
This hearing (the first of its kind before the Congress) was titled: "Examining the Cryptocurrencies and ICO Markets” and it was held to help regulators better understand the industry in order to inform future regulation in the USA.
Witnesses at the hearing included Dr. Chris Brummer, Professor of Law at Georgetown University Law Center; Mike Lempres, chief legal and risk officer at Coinbase; Robert Rosenblum, a partner at the Silicon Valley law firm Wilson Sonseni Goodrich & Rosati; and Peter Van Valkenburgh, the director of research at Coin Center.
The hearing has already received some coverage in mainstream crypto news outlet but after sitting through its two-an-a-half hours live-stream I'd like to tell you what, in my opinion, boiled down.
Most congressmen and women present at the hearing do not really understand how crypto-currencies work and seemed perplexed as to why people would use them instead of fiat currencies. However, most seemed genuinely aware of the necessity to regulate with a light touch so to not nip this nascent industry in the bud and drive innovation away from the U.S.
Sadly, regulators seem oblivious to the fact that most of what drives the crypto industry and the speculation around it is a paradigm shift towards better financial inclusion for the common folks that have long been denied the opportunity to invest and take their financial destiny into their own hands.
ICO tokens came under fire many times during the hearing as illegal sales of securities because it's assumed that they successfully pass the Howey test.
Under the Howey Test, a transaction is an investment contract [security] if:
1.It is an investment of money
2.There is an expectation of profits from the investment
3.The investment of money is in a common enterprise
4.Any profit comes from the efforts of a promoter or third party
It's still very unclear if future regulations will make room for a distinction between crypto-currencies (regulated as commodities) and crypto-securities (regulated... as securities) or place them all in the same basket: either all securities, all commodities or all "crypto-assets" with their own specific legal regime.
It's relatively safe to assume that the crypto-currencies that trade on Coinbase are commodities because there is legal precedent(jurisprudence) about Bitcoin and Ethereum being commodities. Interestingly, Mike Lempres remarked that Litecoin and Bitcoin Cash are also commodities by association with Bitcoin because the former were forked off the latter which. This, in my opinion, is a bit a a stretch since following this logic would a fortiori also make most cryptocurrencies commodities since most are forks from Bitcoin or include some of the Bitcoin DNA into their code.
Many of the major U.S. "exchanges" aren't registered as exchanges and thus are likely to come under regulatory fire in the future but at this point in time it's unclear what that would mean for them and for their users.
As a trader and investor, there are a few points I took away from this hearing:
- This is definitely not a good time to invest in ICOs;
- Right now, Bitcoin and Ethereum seem relatively shielded from regulatory risks due to them likely being commodities although this hasn't been confirmed in law yet;
- If crypto exchanges end up being shut down (although I don't think they will) or start erecting barriers to keep retail investors out, decentralized exchange solutions like 0x, Wave or Binance will likely start to grow and could represent the next big investment opportunity.
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