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Crypto: Congress runs the risk of ‘dumb regulation' that drives innovation away, Rep. McHenry says

Rep. Patrick McHenry (R-NC), House Financial Services Committee Ranking Member, weighs in on Congress' hearing on Capitol Hill with crypto CEOs yesterday, examining the key takeaways and how lawmakers should regulate digital assets.

Video Transcript


BRIAN SOZZI: Welcome back. Our next guest says Congress must continue to work to bring legal and regulatory certainty to technology such as cryptocurrencies so that entrepreneurs can flourish in the United States. Congressman Patrick McHenry joins us now.

I should note he's also a ranking member of the House Financial Services Committee, which received testimony from a whole lot of crypto heavyweights yesterday. Congressman, good to see you here. Is this one of the biggest risks as it pertains to regulation that regulation, when it comes out in any form, is too tough in that crypto entrepreneurs take their capital and move it outside of the country?

PATRICK MCHENRY: I don't think it's a question of tough or lax regulation. We currently have, as members learned yesterday, members of the House learned yesterday, we currently have a regulated space for cryptocurrencies in the United States. They're adhering to existing laws. What we have the risk of is poor regulation, bad regulation, dumb regulation that then drives this innovation somewhere else.

We have a question of, really, whether or not the United States wants to be competitive and in web 3. And if we want to be the innovators, we want to be the leaders in the space, like we were the leaders in the space in web 1 and 2, we have to make sure that we embrace this technology and have a fulsome embrace of it at the federal level so that it can grow and flourish here and get all the benefits here at home.

BRIAN CHEUNG: Representative McHenry, it's Brian Cheung here. Now I think in the span of kind of-- or on the spectrum of House Financial Services hearings, yesterday's was pretty tame. It was kind of a genuine fact-finding mission for both Democrats and Republicans and seemed like it could be a good starting ground for some sort of bipartisan approach to a regulatory framework around these things.

What is the next actionable step? And I'm not talking about specific policies, but from a legislative standpoint, would this look like some sort of kind of wholesale framework like a Dodd-Frank that would kind of overarch everything here? What are the next steps for lawmakers now that you've already had the fact finding from yesterday?

PATRICK MCHENRY: Well, look, we have a 13-year-old technology. You know, 13 years after Satoshi wrote the Bitcoin whitepaper, Congress is having its first hearing on Bitcoin and blockchain technology. 13 years later, $3 trillion market cap. So one hearing does not-- should not bring about policy. We should have more hearings about this to understand, to understand more deeply the nature of this technology and web 3.

We had, in essence, two brokers, one technology-- two technology creators, and two stablecoins represented on the panel. That is a very, very modest representation of this new ecosystem. So I think we need more hearings of greater understanding of the nature of digital assets and its potential. And that's before we get into the question of what are the necessary next steps.

And I don't think we need a full rewrite of laws. I think we need some modest changes to existing laws to make sure that they're tech neutral. And in that way, we can use the benefits of this new technology here in the United States and let them fit into-- let our regulators embrace these things in a proper way.

JULIE HYMAN: Congressman, I appreciate-- it's Julie here, by the way. I appreciate your concern for wanting to do this properly. At the same time, what you're describing sounds like it's going to take a long time, right? And as you point out, it's already been 13 years. And so what's the level of urgency here? And what is the risk of waiting much longer to get some of these, whether it's expanded or new regulatory frameworks, in place?

PATRICK MCHENRY: Well, first of all, everyone on that panel yesterday was adhering to current laws. And so-- and I think members of Congress were surprised to hear that there is serious regulation in this marketplace, money transmission licenses in 50 states. We have the CFTC in one place. You have a method for ICOs with accredited investors through securities regulation.

We have this layering on of adherence to existing laws. What we don't have, though, is a full embrace of the technology and regulations that are sort of forward with a forward-looking view and an embrace of this technology. We need to work on those things.

So let me just tell you. For Congress to come in 13 years after this technology developed and have one hearing and then say, we have all the answers, is really bad, even for Congress. We need to make sure that we're deeply informed. And right now, policymakers on the Hill, by and large, are barely modestly informed. So we need to have a measured approach, rather than a precipitous approach. I think a precipitous approach would harm innovation here in the United States, rather than the measured approach that I think we should seek.

BRIAN CHEUNG: No, I guess it is kind of unfair to say, all right, well, here's the regulatory approach to all of crypto because there's just so many different corners. So then let me drill down specifically on stablecoins, where even the Biden administration appears to be a leg up above perhaps development of regulation on other corners of crypto.

There was that president's working group report that kind of not specifically laid out any sort of policy recommendations, but at least are thinking about it. In your view, is that kind of the first stepping stone that there could be a piecemeal approach where you have some sort of stablecoin specific approach to, say, for example, requiring these types of firms to have a bank charter or not have a bank charter or other types of prescriptions?

PATRICK MCHENRY: Yeah, I think stablecoins is the soft entry point here by which we can build consensus in a bipartisan way and create law. This is something that regulation alone cannot adapt and embrace. We need to have at the federal level, we need to have changes in law in order for stablecoins to actually be in the marketplace.

What we heard yesterday, though, is a great deal of skepticism on both sides of the aisle about the president's working group approach, which is to say, only FDIC insured institutions can issue stablecoins. There was skepticism by both parties on that account. I think there is a realization that stablecoins have different attributes. Some are a store of value, whether it's a savings account or money market account. Others are a method of payment. So they look much more like a payments regulation regime.

And so we have to make sure that we have law and regulation coming out of that new law that allows for optionality here at the Federal level, based on the nature of what will be done with that stablecoin. Not all stablecoins are made the same. But we need to make sure that they have appropriate capitalization and appropriate regulation for us to get the full benefit out of the entry point to web 3.

JULIE HYMAN: Congressmen, finally, I have to ask, there are some of your fellow peers in Congress who are Bitcoin bulls, outspokenly so. I'm just curious if you own any of this stuff, if you own any crypto at all.

PATRICK MCHENRY: I don't, and my view here is that my work in public policy is focused on public policy and not personal gain and personal benefit. And so while I am bullish about digital assets in the space, I don't own any, nor do I participate in any trading of stocks otherwise, although I think people should have ownership of the marketplace. I am a federal employee, and I have a federal retirement account, just like other federal employees and their broadly held instruments in that retirement account. So I'm a pretty boring guy, but I think this is an exciting space that we should adapt and embrace in a really fulsome way.

BRIAN SOZZI: Yeah, you seem pretty cool to us. Congressman Patrick McHenry, good to see you. Have a great rest of the week.