The American Bankers Association appreciates the opportunity to submit a statement for the record for the hearing titled "Coincidence or Coordinated? The Administration’s Attack on the Digital Asset Ecosystem."
The digital asset marketplace, comprising cryptocurrency and stablecoin and the firms that support the digital asset transactions, is changing rapidly. In November 2021, the total market capitalization of all cryptocurrencies (including stablecoins) peaked at around US$3 trillion. Since then, in the face of several high-profile events, the digital asset market precipitously collapsed in value (total market cap is ~US$1.03 trillion as of March 6, 2023), and many consumers and investors have been adversely impacted. Some crypto companies have suspended the ability for consumers to withdraw their funds and ultimately filed for bankruptcy, calling into question whether those consumers will ever be made whole. In at least one insolvency proceeding of a non-bank, the court has made a preliminary decision to treat customer assets as property of the bankruptcy estate available for satisfaction of claims of general creditors. In connection with another insolvency, concerns have been raised with regard to misrepresentation as to whether customer cash deposits were FDIC insured and under what conditions that FDIC insurance would apply. Other crypto companies have sought emergency loans to stay afloat. What all of these crypto companies have in common is that they are not subject to consolidated federal regulation and supervision. The risks these non-banks’ unregulated operations pose to consumers have become clear.
Congress is right to focus on the digital asset ecosystem to better understand how the various entities in the market operate, what risks those operations present, and therefore what regulations or legislation is necessary to ensure consumer and investor protection and financial stability without inhibiting innovation.
The digital asset ecosystem encompasses a broad range of entities, assets, and activities. It is important to distinguish among the different aspects as each carries varying levels of risk; however, often digital assets are categorized broadly without regard for the particular characteristics of a specific type of digital asset. At the most foundational level, policymakers must understand that distributed ledger technology (DLT) or blockchain technology is different than cryptocurrencies. While cryptocurrencies operate on DLT, there is potential value in DLT separate and apart from cryptocurrency activity. Blockchain technology has potential for application in financial services that, over time, may lead to enhanced efficiencies, new products, and new ways to deliver traditional products. The fundamental characteristics of blockchain, including immutability and transparency, are relevant and valued in the financial services market, and many banks are exploring potential uses.
Download to read the full text