RELEASE: CAP Report Argues That Congress Is Getting Crypto Regulation Wrong
Washington, D.C. — A new report from the Center for American Progress urges Congress to chart a new path forward on crypto regulation. The report rejects the prevailing notion in Congress that crypto assets require their own regulatory structure. It argues that crypto assets are simply new digital versions of traditional financial products that have existed for generations and should be regulated as such.
Report authors Todd Phillips and Alexandra Thornton argue that if Congress allows crypto assets to exist under an alternate regulatory regime it will likely weaken long-standing regulatory frameworks designed to protect investors and the public, as well as invite regulatory arbitrage. The report explains that regulators can use their existing statutory authorities to regulate crypto assets, such as crypto securities, crypto commodities, nonfungible tokens, and stablecoins, and ensure their tax compliance. Specifically, the U.S. Securities and Exchange Commission (SEC) can regulate securities, regardless of whether those securities are paper or traded on a blockchain; the Commodity Futures Trading Commission protects against fraud and market manipulation in the commodities and derivatives markets, regardless of whether those commodities are physical or digital; the Office of the Comptroller of the Currency and other banking regulators ensure the safety and soundness of banks, whether they provide loans or issue crypto assets; the Financial Crimes Enforcement Network identifies and prosecutes illicit use of the financial system, no matter the assets; and the IRS administers the federal tax system, ensuring that income from all sources is reported and taxed appropriately.
Accordingly, Congress should enact legislation only to the extent that it creates new consumer, investor, and financial system protections—and does not weaken existing safeguards. In the past, statutory carveouts such as those Congress is considering have had catastrophic consequences for the broader economy. The CAP report explains that Congress should focus on filling in the statutory gaps, including in the sale of crypto commodities such as Bitcoin. Agencies don’t currently have the regulatory frameworks to require, for example, exchanges to be protected against cyberattacks, to actively police their markets for fraud, or to list crypto assets for sale only if they are resilient to market manipulation. The SEC can mandate these commonsense protections in the crypto securities markets, and Congress should ensure they can be similarly applied to the crypto commodities markets.
“While regulators are not using the full extent of their authority to regulate crypto assets yet, many are beginning to,” said Thornton, senior director of Tax Policy at CAP and co-author of the report. “They should move forward, with Congress filling in any specific gaps that are identified.”
“Congress has long recognized that there will always be new financial products and drafted regulatory statutes with this in mind. Current regulation is flexible and expansive enough to allow regulators to begin addressing the vast majority of issues posed by crypto assets,” said Phillips. “By treating crypto differently than other assets, Congress could inadvertently weaken crypto regulation in its attempt to strengthen it.”
Read the report: “Congress Must Not Provide Statutory Carveouts for Crypto Assets” by Todd Phillips and Alexandra Thornton
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