Stablecoin hearing 'is going to be a lot more contentious' than previous Congressional hearing

Jaret Seiberg, Cowen Washington Research Group Managing Director, Financial Services and Housing Policy Analyst, joins Yahoo Finance Live to weigh in with his outlook on a future Senate Banking Committee hearing over stablecoins.

Video Transcript

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ZACK GUZMAN: Welcome back to Yahoo Finance Live. In today's "Crypto Corner," we are watching crypto prices slide back a bit. Bitcoin reaching a more than two month low here as it moves back below that $48,000 level. Of course, all these moves coming on the heels of what we saw last week in the House Financial Services Committee hearing featuring some pretty big name executives in the crypto space. And the Senate coming back with a hearing of their own focused on stablecoins. Going to get that in the Senate Banking Committee.

And for more on what to watch there, I want to bring on Jaret Seiberg at Cowen Washington Research Group Managing Director, Financial Services and Housing Policy Analyst joins us here. And Jaret, when we look at it, you know, obviously, regulators have been keenly focused on stablecoins, as it kind of, I guess, the main question we heard in the House Financial Services Committee was the threat to the US dollar and what it means for the global reserve currency status that the dollar enjoys. What are you expecting to hear this time around as maybe it might not be as friendly as that House hearing?

JARET SEIBERG: Yeah, it's going to be a lot more contentious. I mean, the House hearing, there were a lot of witnesses. There were a lot of members. You know, it went on for five hours.

Senate Banking going to be much more concise. You have two crypto critics who are testifying. And I expect a lot of punches to be thrown.

AKIKO FUJITA: I mean, you specifically pointed out the Banking Chair, Senator Sherrod Brown, is sort of a risk saying it really depends on how aggressively he's going to move on that. Can you lay that out for me? Why do you see that as a risk and what are they?

JARET SEIBERG: Sure. So, I mean, you know, the Senate is really all that matters when it comes to legislating and I mean that with no offense to my friends in the House. But at the end of the day, you know, the cliche in the House is, the Senate is where legislation goes to die.

And the House can pass as many crypto-related bills as it wants, but if Sherrod Brown doesn't become a champion of crypto legislation, it's simply not going to become law. And so, how engaged he is in the subject, how much he really wants to help financial regulators clarify the law, it's really going to matter. And this is our best indicator that we've had in the last 12 months as to what he's going to do.

ZACK GUZMAN: And I guess maybe we heard some of that frustration from the executives in the House hearing last week, mainly when you think about Brian Brooks. He got a lot of airtime speaking in front of congressmen and women there. The CEO of mining company, Bitfury. But he voiced maybe some of the frustration there in action in Congress. Just want to play what he said. Take a listen.

BRIAN BROOKS: Is it consistent to take the position that only banks should be allowed to issue stablecoins, but then fail to grant bank charters to the largest issuers of stablecoins? Does it make sense to bring enforcement actions challenging certain crypto assets as unregistered securities, but then fail to allow those assets to be registered and trade on a National Securities Exchange?

ZACK GUZMAN: But Jaret, let me turn maybe the question on its head here and talk about how it could be a positive if it's so hard to get things changed in Congress, because you know, some people in the crypto community say, look, these things are going OK. Maybe it'd be better if we have some clarity around some of this stuff. But outside of maybe more regulatory pressure that messes things up as they're going, maybe steady as she goes is fine for some of these companies.

JARET SEIBERG: OK. So, you know, this is always a quandary, right? Because you have a lot of risk whenever Congress tries to wade into something particularly as complicated as crypto. I mean, let's face it, if you were to poll all 535 members, you know, who knows really what the knowledge level would be on the House, up on Capitol Hill. You know, by contrast, we do have more confidence in the regulators.

The problem is that the regulators basically are Carte Blanche right now. And you know, as you heard from former Acting Comptroller Brooks, there's a lot of frustration with the SEC. There's a lot of frustration with the banking regulators. At the end of the day, if we were to just get some small clarifications, I really think it could go a long way to providing the clarity that the industry really seeks.

AKIKO FUJITA: How optimistic are you that we're actually going to get that in these congressional hearings and what should that look like, if you're not talking specifically about regulation, but a little more clarity that gives guidance, what should that look like?

JARET SEIBERG: Sure. So, I think the most important thing in the short term is stablecoins. You know, we've seen before with money market mutual funds, which I think are the closest analogy, that in times of crisis you can have real liquidity problems with money market mutual funds. We saw that the start of COVID-19. We saw that during the great financial crisis.

You know, some of my friends at the banking agencies like to go back to prior to the FDIC when you had private banks without deposit insurance, and similarly you have liquidity risk and run risk. And I think that, you know, as stablecoins become a part of the broader economy, as they get used for more things, as they become more of a payment mechanism and less of a way to trade Bitcoin and other cryptocurrencies, you really need that stability. And so, I think some clarity as to exactly how those liquidity rules would apply that could be really helpful to the sector.

ZACK GUZMAN: And Jaret, I guess lastly too. Some people were optimistic and really came away with a positive attitude off that House hearing because it was a lot of questions and answer seeking rather than talking tough from congressmen and women there. Seemed like a genuine interest in learning more. I mean, Senate Banking might actually have a better stronghold of some of these issues, particularly when it comes to stablecoins. But what is your expectation maybe for this one and what it might mean for, I guess, a warming of relations between regulators and crypto?

JARET SEIBERG: Yeah. All right, so, I'm not very optimistic on that front. I mean, I think that, you know-- let's be honest. I mean, you know Gary Gensler has pretty firm views about the crypto industry. I mean, we've heard how many times him say, clean up in aisle three, when it is other things comparing it to the Wild West or casino chips. I mean, all these really bad analogies.

And so, I think we are going to see the SEC continue to be an impediment really to the crypto space. But that may be OK in the short term, right? I mean, you really do need regulation to catch up. We do need clarity on stablecoins to catch up.

So, you know, our overall message is still really positive. We are past the point of Washington talking about getting rid of crypto. This is an industry that is here to stay. It's going to grow. I just think we're going to have a couple of years of chaos in Washington that just needs to get sorted out.

ZACK GUZMAN: Jaret Seiberg, Cowen Washington Research Group Managing Director, bringing us the latest there. We'll be on watch tomorrow for that Senate Banking hearing. Appreciate it.