"We are a long way from the peanut fields in Sycamore, Georgia," Representative Austin Scott said today during the House Committee on Agriculture's hearing on cryptocurrency.
Though cryptocurrency may seem incongruous to the committee, the issue has come under the group's consideration because it handles legislation about commodities, which cryptocurrencies may be – albeit commodities very unlike the agricultural products it has historically overseen.
The purpose of the meeting, as described on the committee's website, was to:
"Shed light on the promise of digital assets and the regulatory challenges facing this new asset class. Our committee has a deep interest in promoting strong markets for commodities of all types, including those emerging through new technology."
As is often the case when members of Congress question technologists, the hearing offered its share of giggles to those in the know – Rep. Doug LaMalfa showed off his flip phone, Rep. Ted Yoho referred to something called "Eethrum," Rep. Collin Peterson voiced his continued annoyance over the abandonment of the gold standard.
To explain cryptocurrency to them, the committee welcomed a six-person panel of experts, comprised of Joshua Fairfield, a law professor at Washington and Lee University; Amber Baldet, co-founder and CEO of Clovyr; Scott Kupor, managing partner at the venture capitalist firm Andreessen Horowitz; Daniel Gorfine of the CFTC; Gary Gensler, lecturer at the MIT Sloan School of Management; and Lowell Ness, managing partner at the law firm of Perkins Coie LLP.
Ultimately, the committee attempted to untangle how and when digital tokens should be considered "securities" and when they should be considered "commodities." The distinction is important because all bills, resolutions, and other matters related to commodity exchanges are under the jurisdiction of the Committee on Agriculture, while securities are regulated by the SEC, which falls under the purview of the Financial Services Committee. (The Financial Services Committee also held its own hearing on cryptocurrencies today.)
In his opening statements, committee chair K. Michael Conaway discussed the "great uncertainty" over how to classify cryptocurrency:
"We generally know what to do if a commonly traded asset is deemed a security – we apply the securities laws. And if it is not a security, there is a good chance it's a commodity and subject to the requirements of the Commodity Exchange Act.
The problem seems to be in making that determination. The Howey Test, which concerns the sale of orange groves and service contracts in the 1940s, is often presented as the standard test to determine if the securities laws govern a token, yet they have proved challenging to analyze under the test."
Ness asserted that regulators need to develop novel schemes for addressing cryptocurrency and digital tokens. His statements highlighted the difficulty in categorizing tokens, explaining that their characteristics as commodities or as securities can change over time.
"They exhibit some characteristics of securities during certain phases, and not in others, especially when we get to full functionality, when it's a truly completed product that is being sold," he said.
Gensler claimed that CFTC is doing a good job handling the derivatives market, but "the unregulated, underlying crypto-cash market is a mess," describing it as "at best, the wild west." He argued that Congress will have to consider granting the CFTC additional regulatory authority.