Congressman Warren Davidson said he wants to see “regulatory clarity” in the cryptocurrency market after a discussion with industry experts and lawmakers.
Davidson, R-Troy, indends to introduce a House bill that would offer what he calls a “light-touch” regulation of the burgeoning and complex cryptocurrency market, which he discussed at Tuesday’s “Legislating Certainty for Cryptocurrencies” roundtable with fellow lawmakers and representatives from nearly 50 from finance firms and cryptocurrency businesses.
“Our republic has a colorful history of over-complicating and occasionally frustrating the very spirit of enterprise that built our free market economy into what it is today — the world’s land of opportunity,” the freshman congressman said. “The latest iteration results from regulatory arbitrage in the area of digital currencies, more specifically Initial Coin Offerings.”
An initial coin offering, or ICO, is roughly similar to an initial public offering, or IPO, but without the regulatory red tape, according to Market Watch.
Davidson said offering regulation will offer foresight — which will solve problems and avoid harm — in an industry where innovations in the cryptocurrency technology blockchain “have outpaced current law and court decisions.”
“With a thoughtful, bipartisan approach that protects consumers, advances free market solutions, and defines safe-harbors for the earliest stage innovators, Congress can send a powerful message around the world that the U.S. is the best destination for ICO markets,” he said.
Michael Hiles, owner of Cincinnati-based 10XTS, supports the “light-touch” regulation approach, saying the industry is currently like the “Wild West.”
“There has to be something,” said Hiles, who attended Tuesday’s roundtable. “I’m not a fan that we need a free-for-all. Even though I’m a blockchain company, I’m leaning on the side of there has to be some regulatory frameworks.”
Most people think of Bitcoin when cryptocurrency is mentioned, however, Hiles said the industry is more than that.
Cryptocurrencies are digital or virtual currencies — like digital coins or tokens — that are encrypted, or secured, using cryptography. There are payment transfer coins or tokens, like Bitcoin, but there are other types that don’t deal with payments, such as a utility token that can unlock features inside a software application or a security token that performs a computing security task — like logging into a computer system.
“If I have a token that is a share in a company, that’s very clearly a security,” Hiles said. “But if I have a token that unlocks some feature in an application, and I want to pre-sell that token to the marketplace for access to my system and that token becomes freely trade-able on an open market — that people could freely buy and exchange these things — that’s really what’s at issue.”
Tokens that can be traded on the free market is a licensing issue, not a security issue, he said.
“Everything starts to look like a security to a securities regulator,” said Davidson to CNBC earlier this summer about the Securities and Exchange Commission as they started to regulate the industry. “We want to make sure that the United States capital markets stay strong and vibrant, and one of the ways to do that is provide regulatory certainty.”
Pawel Kuskowski, CEO of the compliance platform Coinfirm, wrote last month on Forbes.com that “regulation must be fit for purpose.” Any “ham-fisted attempts” to regulate cryptocurrencies as a security “will jeopardize market growth.”
“Indeed, many tokens have already seen their price drop and liquidity evaporate, alongside capital flying out of the U.S., he wrote. “If tokens are treated as securities, existing exchanges and wallet providers would also need to be regulated, registering with regulators.”
Europe has become a haven for cryptocurrency companies as they’re locating to regulation-friendly countries, like Malta and Switzerland, which are writing the rules for the industry to operate, according to Bloomberg.com. The market in the United States right now is small, but Davidson said it’s roughly a $500 billion industry where “Bitcoin itself is almost half of that.”
“The Swiss have put a framework in place that is driving capital flows there, so there’s certainty,” he said.
The concern in the United States, Davidson said, is fraud. There’s uncertainty if what these ICOs are going to be securities, or if they are actually commodities.
“We have to protect consumers,” he said.
Springfield-based EF Hutton also participated in Tuesday’s roundtable discussion. Company officials recently announced it plans to generate about $60 million from issuing cryptocurrency. The company said in a press release it would issue “multiple instruments, coins and tokens.”
In a statement to this newspaper, EF Hutton CEO Chris Daniels said the company planned to make several suggestions, including arguing that the U.S. Commerce Department should create a new unit to advice on blockchain technology.
“EF Hutton is the largest and most experienced blockchain-related company in Clark County, Ohio and in Rep. Davidson’s district,” Daniels said. “As a regional leader in the fintech industry, we are providing his office with input and expertise in digital assets.”
The company also announced earlier this month it would provide subscription-based research on cryptocurrencies, and is establishing a cryptocurrency exchange. The exchange is expected to be operational in January next year.