Senators, Witnesses Clash in Hearing on Crypto Market Structure Bill

The CLARITY Act, which lays down jurisdictional lines for crypto between the SEC and the CFTC, originated in the House and is scheduled to be voted on there next week, where it’s expected to pass. The Senate last month passed the GENIUS Act creating a regulatory framework for stablecoins, but is just beginning to turn its attention to a general crypto market structure.

Republicans on the committee were generally supportive of the House approach. “We don’t need more roadblocks – we need rules that actually work,” committee chair Sen. Tim Scott (R-SC) said in his opening statement. “That means legislation that will, number one, clearly defines which tokens are securities; two, supports modern trading infrastructure; three, ensures appropriate illicit finance protections are in place; and four, protects investors while fostering innovation.”

Sen. Elizabeth Warren (D-MA), the ranking member of the committee, raised concerns, however. “[N]ew crypto rules shouldn’t open a back door to destroy the securities laws that have served as the bedrock of our capital markets for nearly 100 years,” she said in prepared remarks. “Some recent proposals, including the CLARITY Act that the House will vote on next week, include language that would allow non-crypto companies to tokenize their assets to evade the SEC’s regulations.

“Think for just a minute about what that means,” she added. “Under the House bill, a publicly-traded company like Meta or Tesla could simply decide to put its stock on the blockchain and POOF! it would escape all SEC regulation.”

Witnesses at the hearing included Summer Mersinger, CEO of the Blockchain Association, Chainalysis CEO Jonathan Levin, Pardigm general partner Dan Robinson, and Ripple CEO Brad Garlinghouse, all of whom were generally supportive of the need for Congress to crypto market rules, if not for all provisions of the CLARITY Act.

Most of the fireworks, however, came from two critics of the bill, former CFTC chairman Timothy Massad, now a research fellow at Harvard’s Kennedy School of Government, and Richard Painter, a former White House ethics lawyer under President George W. Bush and now a professor of corporate law at the University of Minnesota.

Massad called the CLARITY Act a “236-page invitation to regulatory arbitrage” by smart lawyers “I know,” he said, “because I used to be one of the people of did that.”

He warned against Congress writing detailed definitions of different types of crypto tokens into law when the technology is rapidly evolving. Instead, he said, Congress should let the SEC and CFTC work together to come up with a flexible framework that can evolve with the technology.

That prompted a sharp exchange and raised voices with Sen. Bernie Moreno (R-OH). “The idea that we would turn this industry over to some bureaucrat working in some agency is insane,” he said. “That would make so that no American company would ever invest in a digital asset company in the United States of America, when you have people completely lacking the fundamental technical basis,” to understand the technology.

For his part, Painter focused his remarks largely on ethical issues around Trump and members of Congress investing in crypto assets while also engaged in regulating the industry.

“In most of the federal government financial conflicts of interest with official duties are a criminal offense,” he said. “The conflict-of-interest statute imposes criminal penalties on anyone who participates personally and substantially as a government officer or employee in a particular matter in which he has a financial interest. This criminal statute applies to every Executive Branch officer or employee, except for two: the President and the Vice President. It also does not apply to Members of Congress.”

That led to a shouting match with Sen. John Kennedy (R-LA) who accused Painter of claiming Congress has been “bought” by the crypto industry and demanded an apology before the chair eventually stepped in to call for decorum.