Congress and Crypto: The Push for a Clear Regulatory Framework

Crypto legislation is seeing momentum on Capitol Hill yesterday.

The Genius Act passing another 60 vote cloture threshold in the Senate, while the Senate is working on advancing the Genius Act, which provides a regulatory framework for stablecoins.

The House is moving on the digital asset market structure Clarity Act.

Now this week, the Clarity Act has been passed by the House Ag and Financial Services. committees and is inching closer to a final passage vote.

While many in the crypto industry are optimistic over this legislation, especially after years of stringent regulation from the SEC, some other blockchain advocates are weary the Clarity Act may not live up to its name.

Now one of those is former CEFTC Chairman Tim Mossad.

Here's what he had to say about the bill at a congressional hearing last week.

The act provides an exemption for capital raising transactions for blockchain systems that is too broad to begin with and can easily be exploited.

It has an expansive exemption for decentralized finance trading protocols which will permit all sorts of activities, including potentially transactions in digital versions of securities, to be exempt from the securities laws.

Other provisions rely on concepts of decentralization that are difficult to measure.

Well, joining us to weigh in this morning is none other than Tim Massa, director of the Digital assets Policy Project at Harvard Kennedy School.

Tim, good morning.

Thank you so much for joining us.

So the Clarity Act seeing momentum on Capitol Hill.

So take us through your concerns on the legislation.

Sure, well, I think it has the right goals, but it's the wrong means.

It's basically just far too complicated, and I think as a result of that, it was not creating the investor protection we need uh for what we call the non-security market in digital assets and undermining our existing traditional securities law framework.

And you know our existing securities markets, $120 trillion in capitalization, those in our derivatives markets are the foundation of our economy.

They're incredibly important.

They're, you know, a source of great innovation.

Digital technology is important, but we need to keep it in perspective.

So what I have said is, look, This legislation should do no harm.

It shouldn't undermine those laws, and we should keep it simple.

I think what's happened here is the House has chosen to take an approach to promote investment of this technology, and it's written a lot of very complicated provisions which I think are going to be not just hard to administer but easy for lawyers to exploit.

To find ways to get, you know, lesser compliance burdens.

So that's my overall concern.

And do you have similar concerns when it comes to the Genius Act, and are you optimistic about stablecoin's adoption prospects?

No, I think the stablecoin legislation is quite different.

First of all, it's a, it's kind of a narrower problem we're trying to address.

It's an easier one to understand, and I think it's good that the Congress is finally creating a regulatory framework around stablecoins.

I think the Genius Act is good, but it could be better, and I would cite, you know, three principal concerns.

One is I don't think it does enough.

To prevent the use of stablecoins for money laundering and illicit activity.

Uh, it calls for studies, uh, but what it really should do is give the treasury additional authority.

Uh, 2, it's not as strong in the regulation of foreign stablecoin issuers as it is on domestic issuers, and you know, the biggest stablecoin issuer Tether is a foreign company, so we shouldn't be allowing foreign firms.

To create these essentially synthetic dollars without complying with uh comparable regulation.

The Genius Act has been improved recently on this point, but it still needs to be made stronger on that.

And the third thing I would cite is the question of whether non-financial companies, particularly large social media companies or technology platforms, can own the stablecoin issuer.

You know, we've traditionally had a separation.

Between banking and commerce in this country and the Genius Act finally addressed this.

It said public companies that are nonfinancial companies can't own a stablecoin issuer, but that should include private as well, you know, OpenAIX, those are private companies.

We shouldn't be.

Prohibiting meta from owning a stablecoin issuer but allowing X to own a stablecoin issue.

So on those three issues, I actually think, you know, the House leadership, the Republican leadership, I think is sympathetic to some of these concerns.

I'm hopeful they'll address them.

Of course, the other wild card in all of this is a lot of Democrats are very concerned about Trump's personal activities in crypto profiteering, and we'll have to see how that affects whether people will still support this or whether they want the legislation to address that.

Yeah, and Tim, speaking of stablecoins, you bring up an important point when it comes to tether.

There has been a spotlight on stablecoins here in the US, especially with Circle's IPO last week.

So I do want to ask you while we have you here, what would you rather see Congress or regulatory bodies like the SEC, CFTC do when it actually comes to blockchain?

Sure, well, I think Congress has a role to play here.

We don't have a regulator for what we call this non-security spot market in digital assets.

In other words, digital assets that aren't deemed to be securities.

Congress needs to address that, but Congress should be laying down general principles and then letting the agencies do it.

And also what I suggested two years ago with that.

Appointed SEC chair, former chair Jay Clayton, was we need to bring the SEC and the CFTCC together to do this because the problem arises in large part because we have two market regulators in a fragmented system.

So that's the approach I'd like to see, you know, for 4 years, the SEC followed an enforcement only approach, didn't work on rules.

Now it's kind of flip flop.

The SEC has dropped all the enforcement cases, which they shouldn't do.

Uh, they have some work streams going, but Congress seems to want to write the rules.

So I think we need Congress to set some broad principles, direct the CFTC and the SEC to work together to do this and then let the agencies do it.

And the countdown is on to the 2nd half of this year.

So what dates are you paying attention to and what's on your calendar in the second half?

Well, again, I think we'll hopefully see stablecoin legislation passed.

I hope again it's modified in the House.

I think the chairman of the House Financial Services Committee heard him express a concern on a couple of the points that I've mentioned, so I'm hoping he will address that.

One big question though is whether they try to combine the Market Structure Act with stable coin legislation.

I think that's going to be very tough sledding again, I think the the market structure, the Clarity Act, you know, it's anything but clarity, and I think that's going to have a rough time.

So I think it would be better to pass stablecoin legislation and then move forward again with a more principles-based approach to market structure legislation.

OK, Tim, well, thank you so much for joining us on this Thursday morning.

It's always great to get your insight and perspective.

We are approaching the market open here at the New York Stock Exchange, so we will have to leave it there.

Look forward to speaking with you again soon.

Thank you.