Chief executives of six crypto companies went before the House Financial Services Committee for about five hours recently, talking about the perils and promises of digital currencies. The group was convened by Maxine Waters, the head of the committee as part of efforts to shed more light on digital assets and their regulation. The meeting followed familiar patterns in the house, with the democrats voicing their concerns over cryptocurrencies and republicans emphasizing why innovation is a good thing and how strict regulation would kill a young industry.
Miss Waters was concerned about the speed of crypto adoption, blaming celebrity endorsements for the growth. She pointed out that digital assets have no regulatory framework at the federal level. The need? – that anyone who would be involved in writing regulation knows enough about cryptocurrency. Describing the hearing, Harry Yeh, who has been in the cryptocurrency space for a while now and who actively talks about these things online, said that it was a ‘good meeting of minds.’ It is always a good idea when policy makers consider where to draw the lines when regulating new technology. The group also discussed in length what protecting investors against fraud and losses would look like as well as how to help the unbanked.
The hearing comes at a time when lawmakers and regulators are looking to create new rules for regulating cryptocurrency, and just after the recommendations put forward for regulating stablecoins by the Biden administration. Existing laws ban Bitcoin from being classified as a security. It is a new form of property that needs its own laws. There is evidently a need for clarity around digital assets including defining the basics like what constitutes a digital asset. There are gaps in the current banking rules.
Mr. Yeh applauded the fact that this conversation that has been going on in the crypto world is happening publicly. ‘There is a lot of digital asset innovation happening, and seeing these topics discussed is a great step forward,’ he said. Even so, regulating the crypto world has to factor in the issue of volatility. Digital assets are very volatile. As it turns out, 80% of Bitcoin holders actually hold it. So, the volatility we see is created by few players who are unwinding leveraged trades. Some people suggest that new price discovery rules would cut down some of the volatility.
According to Mr. Yeh, there have been three bull market cycles since 2013, which is expected. By nature, growing industries tend to be volatile. The stocks were volatile in the ‘80s, but not so much in today’s world. The hedging that has been happening in the crypto world surrounding Bitcoin has only been speculative. Mr. Yeh expects that as the market matures, it will become less volatile. The historical trend since people started hedging Bitcoin in 2013 seems to support his hypothesis. Bitcoin is much less volatile than it was back then.