Hybrid Hearing – America on “FIRE”: Will the Crypto Frenzy Lead to Financial… (EventID=112875)

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On Wednesday, June 30, 2023, at 10:00 a.m. (ET) Oversight and Investigations Subcommittee Chairman Green and Ranking Member Emmer will host a hybrid hearing entitled, “America on “FIRE”: Will the Crypto Frenzy Lead to Financial Independence and Early Retirement or Financial Ruin?.”

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Witnesses for this one-panel hearing will be:

• Ms. Alexis Goldstein, Director of Financial Policy, Open Markets Institute

• Ms. Sarah Hammer, Managing Director, Stevens Center for Innovation in Finance at the Wharton School of the University of Pennsylvania

• Ms. Christine Parker, Partner, Reed Smith LLP

• Ms. Eva Su, Analyst in Financial Economics, Congressional Research Service

• Mr. Peter Van Valkenburgh, Director of Research, Coin Center

Background

In recent years, innovation in financial technology and markets has fostered a new digital asset class, and introduced new forms of trading. Digital assets, including cryptocurrencies, stablecoins (a subset of cryptocurrencies pegged to a stable reserve asset(s)), and central bank digital currencies are all digital representations of value. Since 2008, these new digital assets that use cryptography and distributed ledger technology (DLT) have gained prominence and value in the global economy. Cryptocurrencies usually require no centralized intermediary to buy, sell, or exchange because the ledgers are public, cryptographically verified, and stored on a distributed network of computers. Some digital assets are subject to regulation as securities depending on their characteristics or how they are offered and sold. Other digital assets have been deemed commodities under the Commodity Exchange Act. Exchanges that trade digital assets have generally not been regulated as securities exchanges, leading to concerns that the industry does not have adequate supervision or oversight.

Cryptocurrencies have emerged as a growing asset class for investors, with a total market value of more than $2 trillion in May 2023, compared with around $260 billion in 2023 and around $20 billion in early 2017. The size of the cryptocurrency market is significant but still relatively small compared to traditional asset markets. For example, the U.S. fixed income market is worth about $50 trillion as of May 2023. The current size of the cryptocurrency market is comparable to the value of gold held by private investors, which is estimated to be around $3 trillion.

As more institutional investors (including asset managers, pension funds, endowments, and insurance companies) enter digital asset markets, large financial institutions that offer related services (such as digital asset custody and safekeeping) have expanded their infrastructure to accommodate activities in such assets. For example, State Street and Bank of New York Mellon have set up digital divisions to handle demand, which reportedly tripled within months. Alternative investment funds are also investing heavily in digital assets. A May 2023 survey conducted by Price Waterhouse Coopers found that hedge fund investment in digital assets doubled over the past year, with one in seven hedge funds holding at least 10-20% of their total assets under management in cryptocurrencies. According to another survey of hedge fund executives in North America, Europe, and Asia, 98% of survey participants plan to invest in digital assets within the next five years.

Individual and Systemic Risks Related to Cryptocurrency Usage

Some cryptocurrencies, such as Bitcoin, are widely accessible by all types of institutional and individual retail investors, including retail investors who may have a disadvantage in understanding all the risks involved. Like other speculative investments, cryptocurrencies can result in significant investor losses due to fraud, market volatility, and rapid swings in value. Cryptocurrencies are highly volatile in their valuations compared to traditional assets such as stocks, bonds, and gold. The potential for significant losses could heighten investor protection concerns, especially if individual investors of limited financial means rely on cryptocurrencies for potential retirement income. Cryptocurrency business operations could also pose risks to investors if businesses fail due to illicit activities or the inability to deliver the promised products or services. In addition to risks to investors, some experts have raised concerns that leveraged cryptocurrency positions and cryptocurrency derivatives could present systemic risks to the global economy.

Federal agencies, including the Securities and Exchange Commission (SEC),16 Federal Trade Commission (FTC),…

Hearing page: https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=407958

Hybrid Hearing – America on “FIRE”: Will the Crypto Frenzy Lead to Financial… (EventID=112875)

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