Hill Hearing Focuses on Regulatory Structure of Crypto and Digital Asset Oversight

Securities laws need readjustment to account for some of the unique qualities of digital assets — and market structure legislation should pave the way for better oversight of those nascent offerings, attorneys and a crypto executive told a Capitol Hill hearing.

The hearing, titled “American Innovation and the Future of Digital Assets Aligning the U.S. Securities Laws for the Digital Age,” came against a backdrop of wild trading in crypto holdings. The Trump administration paused recently instituted tariffs for the vast majority of trading partners, while jacking up tariffs on China. Bitcoin, in one example, surged 7% through the day.

In his opening remarks, Subcommittee Chairman Rep. Bryan Steil, R-Wis., said the passage last week of the STABLE Act out of committee was a step forward in the digital assets realm,  and, “Today, we will resume our efforts on advancing the second half of this agenda — comprehensive digital asset market structure legislation.” Rep. French Hill, R-Ark., chairman of the House Financial Services Committee, said that legislation would be coming, in draft form, to address market structure.

Existing Frictions

The problem with the current regulatory constructs in place are evident as Rodrigo Seira, special counsel at Cooley, said in his testimony, “While many of crypto’s early use cases have been financial, crypto is a general-purpose technology with countless applications. Crypto provides new ways for individuals to be economically rewarded for their contribution to networks and other public goods, opening the door to people around the country that lack the traditional advantages of capital and credentials.”

He added, “It is clear that the current securities regulatory framework is not a viable option to regulate crypto. It fails to achieve its stated policy goals. … In practice, however, virtually no crypto projects have successfully registered their tokens under federal securities laws and lived to tell the tale. Projects that tried to comply with the SEC’s [U.S. Securities and Exchange Commission] current requirements expended significant resources and effort, only to fail or survive in a state of regulatory uncertainty,” he told the panel.

Alexandra Thornton, a senior director at the Center for American Progress, said in her testimony, “Congress appears determined to pass legislation establishing a light regulatory regime for stablecoins and now for other digital assets” and maintained that “the digital asset markets have not functioned well so far, with massive asset value swings, billion-dollar losses to investors from hacks, and billions more from frauds,” and said, “The SEC has dropped enforcement actions against crypto firms. … The CFPB [Consumer Financial Protection Bureau], which likely would have overseen payment systems for digital platforms, has been kneecapped.”

Testimony of Tiffany J. Smith, partner at WilmerHale, indicated that regulatory clarity has been lacking: “In various speeches, market participants were urged to register with the SEC without a clear path, a number of enforcement actions were brought against market participants, and, in the context of the SEC’s general rulemaking agenda, digital assets were identified in certain proposals but final rules were never adopted.”

Jacob Werrett, the chief legal officer representing Polygon Labs, a software development company, told lawmakers that “to preserve the use cases and important blockchain features … successful legislation should accommodate and encourage decentralization,” adding that “various tests can be applied to determine whether a blockchain, protocol or token are decentralized. Legislation should consider all parts of the technology stack, such as blockchains, protocols built on those blockchains, applications associated with various protocols, and governance of blockchains and protocols.”