Lawmakers have expressed mounting concern over the ever-expanding and still almost completely unregulated world of cryptocurrencies, from tax issues to preventing them from causing anarchy to simply tying the digital dollars into the world’s mainstream banking system.
“Today, there are well over 1,000 different cryptocurrencies with various characteristics that together comprise over $250 billion in total market capitalization,” said Rep. Andy Barr, Kentucky Republican on Wednesday. “Will cryptocurrency be the future of money, are they a bubble that will burst, or even just a passing fad?”
Volatile digital currencies, which exist without the backing of a central bank or government, have been around roughly a decade, thriving in shadows of suspicion for their association with criminal ventures, including money laundering and drug trafficking.
Last year, the leading cryptocurrency — bitcoin — went on one of the wildest rides in recent market history, soaring more than 1,500 percent from $1,000 to almost $20,000 before a massive drop in December. Traditional economists and investors found the surge troubling and called it an extraordinary speculation bubble.
On Wednesday, the House Financial Services subcommittee on monetary policy and trade heard expert witnesses hash through several prominent issues connected to the complex phenomena, including Washington’s still unresolved approach to ultimately deciding what type of regulatory framework could be required.
In the cryptocurrency world, economists and investors have debated a regulation paradox — governments must have regulations to prevent currency price manipulation and other problems, but the absence of rules has made cryptocurrencies grow so rapidly.
Their rise also must be understood within the larger trend of societies across the world using less cash than ever before, said Rodney J. Garratt, a University of California, Santa Barbara economist, to lawmakers.
“Central banks are currently evaluating numerous options for digital currencies, not just in response to the shift away from cash,” Mr. Garratt said. “But also for meeting core objectives and the enhancement of financial market infrastructures.”
Norbert J. Michel, director of the Heritage Foundation’s Center for Data Analysis, noted that Western policymakers are accustomed to a central bank such as the U.S. Federal Reserve having a monopoly on issuing money. Cryptocurrencies exist counter to that notion and threaten to act as substitutes to traditional currencies.
“It is certainly difficult to imagine a cryptocurrency replacing the U.S. dollar as long as the Federal Reserve acts as a moderately good steward of the national currency,” he said. “But it is for this very reason that Congress should eliminate barriers that impede people from using their preferred medium of exchange.”
While Capitol Hill appears likely to continue wrestling with cryptocurrency legislation, the IRS is already working to tax gains investors might have made from last year’s bitcoin bubble with officials there having recently labeled cryptocurrencies as property for tax purposes.