At a U.S. House Financial Services Committee hearing, witnesses outlined their recommendations for Congress concerning the regulation of cryptocurrencies and initial coin offering (“ICO”) markets.
Mike Lempres, Chief Legal and Risk Officer at Coinbase, touted the potential of ICOs and expressed support for the “responsible regulation” of such offerings. However, he criticized “regulation by enforcement,” arguing that it can stifle innovation and inhibit progress. Mr. Lempres called for clear and consistent guidance from regulators, including definitive guidelines on the classification of cryptocurrencies as securities or commodities. He also called for increased coordination between regulatory agencies, and warned that investments are likely to move to other countries absent the development of a clear and comprehensive regulatory framework.
Dr. Chris Brummer, Professor of Law at the Georgetown University Law Center, said that a robust disclosure system for ICOs is important to ensure investor protection. He recommended that policymakers require an ICO to disclose (i) a promoter’s location and contact information, (ii) a technological problem and proposed solution, (iii) a description of the token, (iv) qualifications of the technical team, and (v) industry risk factors.
Peter Van Valkenburgh, Director of Research at Coin Center, urged Congress to consider establishing a federal framework rather than relying on a state-by-state approach for regulating cryptocurrency exchanges. He also identified the distinction between existing scarce cryptocurrencies (e.g., bitcoin) and the promise of future tokens offered by ICOs, and explained that each presents a unique set of risks deserving tailored regulatory consideration. Mr. Valkenburgh said that cryptocurrencies should be treated as commodities and fall within the CFTC’s jurisdiction, while ICO tokens should be treated as securities and regulated by the SEC.
Robert Rosenblum, Partner at Wilson Sonsini Goodrich & Rosati, argued that not enough is yet known about cryptocurrency markets to establish a comprehensive legislative or regulatory framework. In the short term, he suggested that Congress (i) appoint a single federal regulator to have primary jurisdiction over ICOs, tokens and token-related platforms, (ii) authorize the SEC and other regulators to waive certain rules, as applicable to cryptocurrency activity, that may impede blockchain or cryptocurrency development, and (iii) expressly preempt certain state laws that may impose unnecessary requirements on cryptocurrency-related entities and platforms. In the long term, Mr. Rosenblum suggested building a comprehensive legislative framework that is simple, tailored to address the needs of token investors and users, and protects against systemic risk.