Top executives from six giant players in the crypto world came to Capitol Hill on Wednesday for Congress’s first broad hearing on the industry. To hear them tell it, they are already well regulated, thwarting would-be money launderers while making it cheap and easy for anyone to make payments or send money to family members regardless of location. In the words of Paxos CEO Charles Cascarilla, crypto is “a really powerful tool for democratization of access.” Yes, there were some references to speculation and financial bubbles, but overall the executives presented a staid picture of an emerging industry, one that was essentially there to make nice with Congress as it simultaneously launches a lobbying onslaught. And crucially, it’s a different picture of the industry from what one might have gleaned by spending last week in Miami, where crypto investors, developers, and enthusiasts gathered to celebrate digital art, NFTs, and the endless possibilities of the metaverse. That scene more resembled a club of people so rich they could drop $250,000 on a profile pic of a cartoon ape or take a $210,000 McLaren and, as a joke, wrap it in pictures of a Shiba Inu meme.
It’s not that the version delivered before Congress is false. A small but rising number of immigrants to the U.S. are using cryptocurrencies to send money abroad to friends and family, according to an industry news study. And exchanges and entities have to submit to a host of licenses and regulations in order to do business in states like New York, where the Department of Financial Services has been watching over the industry for years. In probably the biggest indication that the hearing went well for the industry, the clips from it that made their way around the internet were weird, memeable moments. “The No. 1 threat to cryptocurrency is crypto,” California representative Brad Sherman said. “Bitcoin could be displaced by ether, which could be displaced by doge, which would be replaced by a hamster coin. And then there’s cobra coin, and what could mongoose coin do to crypto coin?” There was general consensus on social media that the new industry had successfully presented a serious and professional face for lawmakers. And the crypto world loved it:
Despite the popular image of crypto being a plaything of the rich white tech class, the hearing hit repeatedly on how it can be used by minority-owned financial institutions. “Communities of color often rely on minority depository institutions and community-development financial institutions to safely do business and get access to crucial banking needs,” said New York congressman Gregory Meeks. “Just in the past several weeks, Circle has signed on institutional customers who are using these services for small-business payments, international remittances, and efficient payments for remote workers,” said Jeremy Allaire, the founder and CEO of Circle, a mobile-payment company. “Soon, we believe that dollars on the internet will be as efficient and widely available as text messages and email.”
Pushing back on crypto’s reputation as a way to launder money, Sam Bankman-Fried, the CEO of the crypto exchange FTX — the company that bought naming rights for the Miami Heat’s arena and signed up Tom Brady and Steph Curry as brand ambassadors — pointed out that trades of, say, bitcoin are traceable through digital wallets. “If you compare that to, for instance, physical cash,” he said, “already the digital-asset industry has set a very strong standard on that front.” In this sense, he’s right: The IRS has seized more than $1 billion in digital money this year, and the DOJ has seized millions too.
But not everything went well. In defending the integrity of the crypto markets, Brian Brooks, CEO of Bitfury Group, made trading digital assets like bitcoin seem to be at the mercy of a handful of large holders. “When you hear about a day when there was a giant price drop in bitcoin, often it turns out that there was one or two large traders who were unwinding a leveraged position, and the vast majority of holders have enough confidence in it that they’ve literally never sold a unit of it,” he said. The question of whether crypto markets are ripe for manipulation by whales still concerns many regulators.
There was also, early on, a telling slip. Alesia Jeanne Haas, the CFO of Coinbase Global — the largest U.S. crypto exchange — said the company does “not engage in proprietary trading on our platform.” Proprietary trading is a big deal. It’s when an institution, such as a bank, trades with its own money, rather than on behalf of a client. The practice was rampant for years and led to huge profits on Wall Street, but it also led those same traders to pile on huge amounts of risk. During the 2008 financial crisis, the prop-trading bill came due. Banks like Morgan Stanley and Merrill Lynch lost billions of dollars on bad bets on mortgage securities, and it was so destabilizing to the world economy that the Dodd-Frank regulatory law included a rule essentially outlawing it. (This rule, named for former Federal Reserve chair Paul Volcker, has since been watered down.)
Haas’s statement, however, needed an asterisk. According to the exchange’s own rules, Coinbase “trades its own corporate funds on Coinbase Pro and Exchange.” She later clarified, when asked about it by Representative Alexandria Ocasio-Cortez, that Coinbase does buy cryptocurrencies on its own exchange to add to its own balance sheet. “We have not sold that. We don’t trade it actively, but we do increase the investment on a monthly basis on preestablished investment protocols,” Haas said. At the end of September, Coinbase held $834 million in crypto assets. That’s more than double its holdings of the year before.
It’s the kind of mistake that, if made by a Wall Street executive, would call into question the speaker’s own knowledge of the institution and the market risks they took on. Crypto’s most powerful players are saying they want to be treated as members of a mature industry that can act responsibly. In remaking its image, they are going to want to make sure they live up to that standard, even on days when members of Congress aren’t asking them questions.