Senate Hearing to Address Crypto Regulation Gaps

On Tuesday, the US Senate Banking Committee’s digital assets subcommittee is scheduled to hear testimony from former regulators and industry leaders. The purpose of this hearing is to consider legislation aimed at establishing a digital asset market structure framework.

In his prepared testimony for the hearing, former Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam expressed concerns about the current regulatory trajectory for cryptocurrencies. He emphasized that the existing framework is not sustainable without addressing the gaps in regulation. Behnam suggested that lawmakers focus on market structure requirements that prioritize customer protections, avoidance of conflicts of interest, and market resiliency.

Behnam's testimony highlighted the potential risks associated with inaction on digital asset regulation. He warned that without proper oversight, the financial markets and investors could face increased risks, including lack of market transparency, fraud, market manipulation, corruption, and conflicts of interest.

As the digital asset market becomes more integrated with traditional financial institutions, concerns about broader market resiliency and financial stability are likely to grow. This hearing comes at a time when the House of Representatives is also considering its own bill, the Digital Asset Market Clarity, or CLARITY Act. The bill, which moved out of committee in June, is expected to head for a floor vote soon.

Republican leadership on the digital assets subcommittee has outlined key principles for any bill addressing the crypto market structure. These principles include clearly defining the legal status of digital assets, allocating authority among regulators to prevent the emergence of an all-encompassing regulator, and focusing on protecting those who trade or purchase crypto.

Wyoming Senator Cynthia Lummis, who chairs the digital assets subcommittee, emphasized the need for the US to establish clear regulations for the digital asset industry. She noted that while other regions have already implemented clear regulations, the US has been slow to act, potentially driving the industry to seek more favorable regulatory environments elsewhere.

The Senate's efforts to establish bipartisan legislation for a crypto market structure follow recent bipartisan support for regulating payment stablecoins. In June, the chamber passed the Guiding and Establishing National Innovation for US Stablecoins, or GENIUS Act, which will next head to the House for consideration.

Massachusetts Senator Elizabeth Warren, a critic of the president’s ties to the crypto industry, could address some of the president’s conflicts of interest at the Tuesday hearing. Warren has been vocal about the president’s family’s stake and control of World Liberty Financial, a stablecoin issuer, and has called for greater scrutiny of these connections.