During a Senate Agriculture Committee hearing prior to the congressional recess, Sen. Ben Ray Luján (D-NM) spoke about regulating against cryptocurrency fraud.
00:00Senator Lujan. Thank you Mr. Chairman and thank you for holding this hearing and an opportunity to have this particular discussion about digital asset market structure. One of the concerns I think has been brought up today and that many have had throughout the years is what happened with FTX, with Celsius, with a few others like Chair Luna when there was a lot of concern and devastation. What I've appreciated most recently is everyone's willingness to come and have more conversations and say no there needs to be
00:29rules and I appreciate the bipartisan nature of how this has been taking place as well so just thank you so much for this particular conversation. Now Mr. Massad, it's widely understood that Bitcoin is a commodity not a security. Now if I wanted to buy or trade a Bitcoin, a meme coin or another commodity I could log on to an exchange to do that. However I could also buy and trade tokens that look much more like securities on the same platform
00:59right next to each other. So my question is sir what are some of the differences in the protections for consumers between a commodity like a meme coin versus a security like a stock? Well today they're huge because we don't have any regulation of this spot market for so-called digital commodities. That's what we need to put into place. But your question also really goes to the fact that you know when we think about how to make that regime work we're going to need
01:29things that are unusual for commodity markets. We're going to need disclosure rules as well as trading rules as well as conflict rules and so forth. And that's why again I think we're going to have to have some coordination between the agencies.
01:42So with that being said is it reasonable for customers to be confused about the differences in their protections when they're listed next to one another? And does it increase the risk of something called rug pulls and pump and dump schemes? Things of that nature?
01:54Absolutely. And for example under the clarity act it's not even clear that those meme coins would be regulated. Now I think they've recently put out a revision that maybe they would be but you know we should have a framework where anything that's traded on these platforms is subject to the regulatory framework. They can't just list something else that's not and then those rules have to be very clear so that customers aren't confused and we should not have securities trading on the same platform.
02:23So what are your thoughts, your expertise here with what Congress needs to do to protect consumers from fraudulent schemes while still allowing Americans to access and benefit from cryptocurrencies?
02:35Well again we need to put in a good comprehensive framework and you know the measures that have proposed so far have some of those elements but not sufficient ones.
02:45I think they're too lax in a lot of the requirements. I think they you know don't address conflicts of interest sufficiently. I think they undermine securities laws by creating some exemptions from those laws so you know it requires a comprehensive framework that will create investor protection standards that are comparable to what we have in the securities markets today.
03:08Appreciate that. Now Mr. Benham, one issue here is that the CFTC does not have clear regulatory authority over spot crypto markets. As past CFT chair, how would you protect consumers from fraud like those rug pulls that I just asked about and pump and dumps and meme coins where there are clear issuers unlike other commodities like oil where there's no central issuer?
03:30Senator thanks for the question. I do think before we get to a point where you're deciding which agency has jurisdiction if we can get lines drawn around definitions between commodities and securities the whole premise and pieces behind the commodity tokens is that they're in fact maybe an issuer at some point in the evolution of the token but when it's trading on a CFTC exchange it's decentralized
04:00sufficiently decentralized where there's no central institution group of individuals or individual that is controlling or impacting the price of the asset. So if it's sufficiently decentralized which works off of a lot of the legal precedent that is built around our securities laws and our commodities laws you really wouldn't have that issue where you have individuals pulling off manipulative trading activities that could hurt investors.
04:25So is it fair to say that the definition section of this legislation matters?
04:30The definition section of any legislation this committee puts out is arguably the most important part of the legislation.
04:38I appreciate that and Mr. Chair as my time expires that's one of the issues that I and my staff raised during the markups with the Genius Act as well.
04:48And so I certainly hope that we can pay particular attention to the expertise from the staff that we have around us and others coming in when we are looking at that definition section and just highlight your testimony today.
