Senate Hearing on Crypto Market Structure Highlights Risks of Inaction

The US Senate Banking Committee’s digital assets subcommittee is set to hear testimony from former regulators and industry leaders on Tuesday, as part of its consideration of legislation to establish a digital asset market structure framework. The hearing comes at a time when the House of Representatives is also weighing its own bill, the Digital Asset Market Clarity, or CLARITY Act, which has already moved out of committee and is expected to head for a floor vote soon.

In his prepared testimony for the hearing, former Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam warned that the current trajectory of the digital asset market is not sustainable without addressing gaps for cryptocurrencies. He urged lawmakers to consider market structure requirements that focus on customer protections, avoidance of conflicts of interest, and market resiliency. Behnam emphasized that inaction on these issues would result in greater risk to financial markets and investors, including lack of market transparency, fraud, market manipulation, corruption, and conflicts of interest.

Behnam's concerns are echoed by Republican leadership on the digital assets subcommittee, who have stated that any bill addressing a crypto market structure should clearly define the legal status of digital assets, allocate authority among regulators to prevent the emergence of an all-encompassing regulator, and focus on protecting those who trade or purchase crypto. Wyoming Senator Cynthia Lummis, who chairs the digital assets subcommittee, highlighted the need for the US to establish clear regulations, as other regions have already done so.

The Senate's efforts to establish bipartisan legislation for a crypto market structure follow the passage of a bill to regulate payment stablecoins, with many Democrats voting with Republicans in support. The Guiding and Establishing National Innovation for US Stablecoins, or GENIUS Act, passed the chamber on June 17 and will next head to the House for consideration. Massachusetts Senator Elizabeth Warren, a critic of US President Donald Trump’s ties to the crypto industry, may address some of the president’s conflicts of interest at the Tuesday hearing. Warren voted against the GENIUS Act and has called out the president regarding his family’s stake and control of World Liberty Financial, a stablecoin issuer.

As the Senate continues to weigh these issues, the warnings from former regulators serve as a reminder of the need for vigilance in protecting market integrity and ensuring that regulatory frameworks are designed to serve the interests of all participants. The focus on these issues underscores the growing importance of digital assets in the financial landscape and the need for comprehensive regulation to protect investors and maintain market stability. The input from former regulators highlights the global nature of financial markets and the importance of international cooperation in addressing regulatory challenges.