Is Congress really ready to take on crypto?

Momentum appears to be building for lawmakers to take a hard look at cryptocurrency and the technology behind it. Just a few weeks ago, House lawmakers announced the establishment of a Congressional Blockchain Caucus. A handful of representatives then held a roundtable with business leaders focused on how to regulate the nascent industry. There’s even been some initial legislation introduced.

But is Congress really ready to step into the fray?

The Senate Banking Committee’s latest hearing on Thursday underscores just how much work lays ahead of any potential law.

Peter Foley/Bloomberg

The panel hosted a lively debate between Peter Van Valkenburgh, director of the industry group Coin Center, and Nouriel Roubini, the New York University professor widely credited with having predicted the financial crisis, who’s been a vocal critic of the blockchain movement.

But while the two witnesses traded barbs over the potential benefits and risks of cryptocurrencies, there weren’t a lot of fireworks from committee members themselves. The hearing was the second focused on virtual currencies that the panel has held this year. The debate has also come up in the context of Senate conversations around the future of anti-money-laundering policy.

“While the technologies underpinning cryptocurrencies have the ability to transform the composition of and ability to access capital in the financial system, much of the recent news about cryptocurrencies has been negative, focusing on enforcement actions, hacks on international exchanges and concerns raised by various regulators and market participants,” said Chairman Mike Crapo, R-Idaho.

Overall, the discussion appeared to be more of a fact-finding mission than it did an opportunity to make the case for a particular legislative roadmap. "The committee is in process of better understanding the opportunities and challenges surrounding the cryptocurrency and blockchain ecosystems," a panel spokeswoman said in an email.

The event suggests that there are still real questions about the very direction any potential legislation should take or whether it is needed at all. Some wondered whether policy can help nurture responsible growth of cryptocurrencies while others suggested tougher consumer protection oversight is needed to keep the industry in check. Is there room for both?

Democrats, in particular, including Sens. Elizabeth Warren of Massachusetts and Doug Jones of Alabama, were quick to raise concerns about the risk of illegal activity and the potential harm to consumers in these new markets.

“I hope this technology will prove useful, particularly in helping people who are unbanked or underserved by the traditional financial system. And I understand why individuals might be interested in it,” said Sen. Sherrod Brown, D-Ohio, the committee’s ranking member. “But at this point, it is easier to see the malign impacts on society as a whole than the constructive ones.”

Still, lawmakers didn’t go as far as Roubini, who has repeatedly slammed virtual currencies.

“My views on this ecosystem are as follows: First, crypto is the mother or father of all scams and bubbles, a bubble that’s finally gone bust this year,” he said Thursday. “Second, blockchain is the most overhyped technology ever and it’s no better than a glorified database.”

Bitcoin may be 10 years old this month, but for policymakers, it seems like the real legislative fight over crypto is still to come.

Bankshot is American Banker’s column for real-time analysis of today's news.