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Examining Cryptocurrencies and ICO Markets

Washington, Mar 15 -

The Subcommittee on Capital Markets, Securities, and Investments held a hearing Wednesday to examine the cryptocurrencies and Initial Coin Offering (ICO) markets. These markets have been growing rapidly, attracting significant attention from investors and start-up enterprises interested in how cryptocurrencies and digital ledger technology can provide capital formation opportunities and contribute to more efficient capital markets, while also drawing increased scrutiny from regulators committed to protecting investors against fraudulent activity.

“Cryptocurrencies and ICOs provide an innovative vehicle for startups to potentially access capital and grow their businesses,” said Subcommittee Chairman Bill Huizenga (R-MI). “As further action on how to regulate cryptocurrency and ICO markets is considered, it is important that innovation in the area of digital currencies and capital formation are not stifled while still ensuring that consumers are protected, fraud is prevented, and securities laws are followed.”

Topline Quotes from Witnesses

“The U.S. is perfectly positioned to take advantage of the benefits of this new technology. We are the most innovative and entrepreneurial country on earth. If permitted, capital will flow into this country because we are the best place on earth to create companies that meet new opportunities. This will create benefits for both U.S. investors and entrepreneurs. However, capital in this space can move around the world nearly without friction. If the U.S. does not provide a clear, thoughtful regulatory environment, the investment can move very quickly to other countries.” – Mike Lempres, Chief Legal and risk Officer, Coinbase

“From a regulatory standpoint there is a fundamental distinction to be made between, on the one hand, scarce tokens that exist today and are used for payment or to obtain computing services, and, on the other hand, promises of future scarce tokens that represent the hopefully profitable efforts of a developer. ” – Peter Van Valkenburgh, Director of Research, Coin Center

“ICOs tend to serve a different purpose from most traditional IPOs. Instead of funding industrial companies transitioning into a more mature cycle of development, ICOs involve products developed by startups identifying technology-based problems (like limited or volatile cloud storage needs) and proposing the sale or financing of technology-based ‘solutions’ (like a peer-to-peer platform for buying and selling cloud storage space). In return for financing, promoters offer coins with varying currency, utility or securities features.” – Dr. Chris Brummer, Professor of Law, Georgetown University Law Center

“I believe that we don’t know enough—yet—about the emerging cryptocurrency markets and businesses to develop a comprehensive legislative or regulatory framework. There is a significant risk that even the best-intentioned framework will have unanticipated negative consequences.” – Robert Rosenblum, Partner, Wilson Sonsini Goodrich & Rosati