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Joint Economic Committee Democrats Chairman - Rep. Don Beyer (D-VA)

JEC Held Hearing to Explore Digital Assets, Role of Government

Current moment represents “opportunity to take action before a potential crisis hits the broader economy”

Today, the Joint Economic Committee (JEC) held a hearing entitled “Demystifying Crypto: Digital Assets and the Role of Government” to explore the regulatory, policy and economic concerns posed by digital assets for the United States and the global marketplace. Chair Don Beyer (D-VA) presided. 
 
In recent years, financial markets have increasingly adopted the use of digital assets like Bitcoin and other cryptocurrencies. This growth accelerated during the pandemic, with the reported total value of all cryptocurrencies growing from $200 billion in January 2020 to nearly $3 trillion last week. However, recent price volatility in digital assets has erased four hundred billion dollars in value in the last seven days, an amount roughly equal to the entire size of the market just one year ago. 

The rapid rise of digital assets has highlighted gaps in the current regulatory framework, and updates to existing regulations can help guide innovation while protecting investors and the integrity of financial markets. 

“The mainstreaming of digital assets is laying the foundation for huge swaths of the economy to invest in this market,” said JEC Chair Beyer. “Increased crypto market volatility or a digital bank-run could disrupt more mainstream financial institutions like pension funds or mutual funds. And the underlying assets can create significant consumer protection issues given existing patterns of financial fraud, hacks, and market manipulation.” 

“Congress should continue to examine if there are regulatory gaps that require new legislation to ensure consumer and investor protection in the cryptocurrency space,” stated Ms. Alexis Goldstein, Director of Financial Policy at the Open Markets Institute. “Congress should ensure there are mechanisms for the regulators to have a complete picture of systemic risk in the space. Regulators should continue to monitor digital asset markets and ensure compliance with existing regulations 

“Finally, the challenge we face today is not unusual, because the financial sector constantly 

innovates and our regulatory system has to catch up,” explained Mr. Timothy Massad, Research Fellow at the Harvard Kennedy School and Adjunct Professor of Law at Georgetown Law Center. “The early days of subprime mortgages improved access to the American dream of homeownership for many Americans; but it later gave rise to destructive products. The swaps industry created a lot of beneficial hedging, but the industry resisted regulation and eventually generated excessive risks that substantially intensified the 2008 financial crisis. It was only after that we took action.” 

"Regulation and innovation are not necessarily in conflict,” said Mr. Kevin Werbach, Professor of Legal Studies and Business Ethics and Director of the Blockchain and Digital Asset Project at The Wharton School. “In many cases, regulatory action to address abuses and provide clarity to market participants is an important, or even necessary, condition for long-lasting, productive or transformative innovation. This is not to say that all regulation is well-designed or well-implemented. But we have centuries of evidence that unregulated financial markets produce catastrophic boom-and-bust cycles and severe abuses that undermine their welfare-maximizing potential.”