US House Hearing: Crypto Presents a Challenge Beyond Hard and Fast Asset Classifications

Witnesses before the U.S. House of Agriculture Committee at a public hearing July 18 were unanimous in their view that digital assets complicate the hard and fast distinctions of existing regulatory frameworks.

The hearing was chaired by Texas U.S. Representative Michael Conaway, who convened six eminent witnesses to give testimony - former Goldman Sachs partner and U.S. government regulator Gary Gensler, Andreessen Horowitz managing partner Scott Kupor, the CFTC's Daniel Gorfine, law professor Joshua Fairfield, Clovyr CEO Amber Baldet, and Perkins Coie managing partner Lowell Ness.

A key takeaway from the hearing was that a given digital asset may shift its regulatory status as it transitions from one context to another, given the fluidity of the crypto ecosystem.

Critically crypto tokens may cease to be securities once they become used in a decentralized network as a utility token as, for example, in the case of Ethereum.

As Gorfine outlined, the CFTC does not generally exercise direct oversight of the underlying commodity markets themselves, but rather regulates derivatives such as the futures or swaps markets.

Ness warned that over-aggressively extending securities classifications could seriously impede the crypto space, which has evolved precisely to create a network that allows for "Value transfer at the speed of software."

The SEC notably requires that the beneficial ownership of an asset can be determined at any given time, something that Gensler said was not yet technologically feasible to achieve in a frictionless way in the crypto space.

In response to committee members' concerns that crypto can be used for illicit activities, Kupor suggested that "Bitcoin is law enforcement's best friend," given that pseudonymous transactions can ultimately be traced using intelligence tools that analyze traffic on the blockchain.

Ness quipped that "The alleged Russian hackers were caught because they used Bitcoin," in reference to the recent indictment that charged twelve Russian nationals with using crypto to fuel their efforts to "Interfere" in the 2016 U.S. presidential elections.

In mid-May, a U.S. House Subcommittee hearing on blockchain in supply chains concluded that the technology has a variety of applications, even without industry-wide standards.