Lee Reiners, policy director at the Duke Financial Economics Center, recommended that banking agenices restrict the crypto industry from accessing the banking system while testifying to the Senate Banking Committee on Tuesday.
The professor claimed that crypto has produced nothing of benefit during the 14 years since Bitcoin’s whitepaper was published.
The hearing, titled “Crypto Crash,” explored why crypto needs tighter regulation and safeguards to protect investors, especially in the aftermath of last year’s contagious market collapse.
Banking Committee chairman Sherrod Brown opened the hearing with fierce criticism. Calling out the industry for not running ads at this year’s Super Bowl, he mocked Matt Damon’s famous ad on behalf of CryptoCom: “It turns out fortune doesn’t favor the brave. It favors the wealthy insiders,” he said.
Reiners followed by echoing Brown’s skeptical tone, claiming that crypto’s “killer use case” has still not revealed itself after over a decade.
“Most people invested in crypto simply because they thought they could sell it to someone else at a higher price in the future,” he said. Rather, he argued that there is ample evidence of the harms crypto can cause, including hacks, scams, terrorist financing, sanctions evasion, and jeopardizing the nation’s climate goals.
Given the dangers, Reiners said he “agrees with the sentiment” that crypto should be restricted from access to the banking system to the greatest degree possible. However, so long as crypto remains legal, banks are required not to discriminate against the industry.
The professor recommended that banking agencies release information to the public exposing all of the ways that banks are exposed to crypto. He also suggested that agencies become more prescriptive about what crypto-related activities banks cannot engage in – including a rule against holding crypto on their balance sheets.
Linda Jeng –a former member of the SEC CFTC, and Federal Reserve – was also present to testify.. Her belief in crypto’s innovative power was more optimistic than Reiners’s – though even she admitted that regulatory clarity in the industry is severely lacking.
“Congress urgently needs to pass thoughtful comprehensive legislation that establishes a federal regulatory framework with digital assets, addressing both securities and non securities in this complex and nuanced space,” she said.
Senators Cynthia Lummis and Kirsten Gillibrand drafted bipartisan legislation last year to create basic standards for properly regulating and classifying digital assets. The bill drew scrutiny from both regulators and Bitcoin bulls alike.