[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]

                            AND ICO MARKETS



                               BEFORE THE

                       SECURITIES, AND INVESTMENT

                                 OF THE


                     U.S. HOUSE OF REPRESENTATIVES


                             SECOND SESSION


                             MARCH 14, 2018


       Printed for the use of the Committee on Financial Services

                           Serial No. 115-79


                    U.S. GOVERNMENT PUBLISHING OFFICE                    
31-384 PDF                  WASHINGTON : 2018                     
For sale by the Superintendent of Documents, U.S. Government Publishing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, 
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).
E-mail, [email protected] 



                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
TED BUDD, North Carolina

                     Shannon McGahn, Staff Director
      Subcommittee on Capital Markets, Securities, and Investment

                   BILL HUIZENGA, Michigan, Chairman

RANDY HULTGREN, Illinois, Vice       CAROLYN B. MALONEY, New York, 
    Chairman                             Ranking Member
PETER T. KING, New York              BRAD SHERMAN, California
PATRICK T. McHENRY, North Carolina   STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
ANN WAGNER, Missouri                 KEITH ELLISON, Minnesota
LUKE MESSER, Indiana                 BILL FOSTER, Illinois
BRUCE POLIQUIN, Maine                GREGORY W. MEEKS, New York
FRENCH HILL, Arkansas                KYRSTEN SINEMA, Arizona
TOM EMMER, Minnesota                 JUAN VARGAS, California
TED BUDD, North Carolina
                            C O N T E N T S

Hearing held on:
    March 14, 2018...............................................     1
    March 14, 2018...............................................    41

                       Wednesday, March 14, 2018

Brummer, Chris, Professor of Law, Georgetown University Law 
  Center.........................................................     7
Lempres, Mike, Chief Legal and Risk Officer, Coinbase............     5
Rosenblum, Robert, Partner, Wilson Sonsini Goodrich & Rosati.....     8
Van Valkenburgh, Peter, Director of Research, Coin Center........    10


Prepared statements:
    Brummer, Chris...............................................    42
    Lempres, Mike................................................    48
    Rosenblum, Robert............................................    55
    Van Valkenburgh, Peter.......................................    76

              Additional Material Submitted for the Record

Huizenga, Hon. Bill:
    Statement for the record from Liquid M Capital, Inc..........    86
Foster, Hon. Bill:
    Statement for the record from Sweetbridge....................    92
Lempres, Mike:
    Responses to questions for the record from Representatives 
      Emmer and Hultgren.........................................    94
Rosenblum, Robert:
    Responses to questions for the record from Representative 
      Hultgren...................................................   100
Van Valkenburgh, Peter:
    Responses to questions for the record from Representative 
      Emmer......................................................   106

                            AND ICO MARKETS


                       Wednesday, March 14, 2018

                     U.S. House of Representatives,
                           Subcommittee on Capital Markets,
                                Securities, and Investment,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:06 a.m., in 
room 2128, Rayburn House Office Building, Hon. Bill Huizenga 
[chairman of the subcommittee] presiding.
    Present: Representatives Huizenga, Hultgren, Stivers, 
Wagner, Hill, Emmer, MacArthur, Davidson, Budd, Hollingsworth, 
Maloney, Sherman, Scott, Himes, Ellison, Foster, Sinema, 
Vargas, and Gottheimer.
    Also present: Representative Hensarling.
    Chairman Huizenga. The committee will come to order. And 
without objection, the Chair is authorized to declare a recess 
of the committee at any time. The hearing is entitled 
``Examining the Cryptocurrencies and ICO Markets.''
    I now recognize myself for 4 minutes to give an opening 
    The cryptocurrency and initial coin offering (ICO) markets 
have grown rapidly in recent years, and actually it is more 
like recent months. Specifically ICOs have been increasingly 
used by companies to raise capital for their business and 
products. To that end, people often equate them with a new type 
of initial public offering or an IPO; however, an ICO is not an 
    ICOs, whether they represent offerings of securities or 
not, offer potential for entrepreneurs to raise more effective, 
transformative, and efficient funding for an innovative project 
as opposed to a traditional IPO.
    Although an ICO has the same characteristics of raising 
capital and accessing new sources of investment, it does not 
involve an investment in some amount of equity in a company, 
which is afforded under an IPO, nor does it offer the same 
amount of investor protections.
    The size of the ICO market has grown exponentially in this 
past year and the Token Report estimates that approximately 
$6.6 billion was raised in coin offerings. In 2018 alone, just 
in the first few months, 480 ICOs are estimated to have raised 
$1.66 billion.
    Cryptocurrencies and ICOs provide an innovative vehicle for 
startups to potentially access capital and grow their 
businesses. Early investors in some cryptocurrencies have 
experienced massive gains, and the ever-increasing number of 
ICOs has created opportunities for investors to diversify their 
portfolios in cryptocurrencies.
    Since the surge in popularity or crypto craze, there has 
been considerable attention attracted both by investors seeking 
to diversify their portfolios and startup enterprises in search 
of additional access to capital and to grow their businesses.
    This is also rightly garnered attention of the regulators. 
Additional scrutiny has surrounded the cryptocurrency and IPO 
markets due to the number of fraudulent IPOs that have raised 
money with no intention of ever providing a product or a return 
to the ICO purchasers.
    A soon to be published MIT study of the ICO market 
estimates that $270 million to $317 million of the money raised 
by coin offerings has, quote, ``likely gone to fraud or 
scams,'' end quote, according to MIT Professor Christian 
    The SEC (U.S. Securities and Exchange Commission) has the 
authority to bring enforcement actions against ICOs for any 
violation of the Federal securities laws. As part of this 
increased scrutiny of the ICOs, the SEC recently announced 
actions against two virtual currency organizations for engaging 
in unregistered securities offerings.
    Additionally, the SEC suspended trading in three issuers 
claiming involvement in cryptocurrency and blockchain 
technology. The Wall Street Journal also recently reported that 
the SEC has issued, quote, ``dozens of subpoenas and 
information requests to technology companies and advisors 
involved in ICOs,'' closed quote, including, quote, ``demands 
for information about the structure for sales and presales of 
the ICOs,'' closed quote.
    Further, on March 7 of this year, the SEC broadened its 
series of notice statements to exchange-type activity, warning 
that online trading platforms may also be violating the Federal 
securities laws.
    According to the statement, ``If a platform is providing a 
mechanism for trading assets that are classified as securities 
under the Federal securities laws, then the platform is 
operating as an exchange and must register with the SEC as a 
national securities exchange.''
    Today's hearing will examine the economic efficiencies and 
potential capital formation opportunities that cryptocurrencies 
and ICOs potentially offer to businesses and investors, and 
review the adherence to applicable laws so that investors 
receive the full protections afforded by the Federal securities 
    Additionally, the hearing will consider the current 
regulatory approach that regulators such as the SEC are using 
to monitor and oversee cryptocurrencies and ICOs and how to 
achieve further regulatory clarity in these markets.
    As further action on how to regulate cryptocurrency and ICO 
markets is considered, it is important that innovation in the 
area of digital currencies and capital formation are not 
stifled while ensuring that consumers are protected, fraud is 
prevented, and securities laws are followed.
    The Chair now recognizes the gentleman from Minnesota, Mr. 
Ellison, for 2-1/2 minutes for an opening statement.
    Mr. Ellison. Mr. Chairman, thank you for calling this 
important hearing today. As important as it is, there are some 
other things happening that I want to address.
    The Senate is voting today to roll back some of the rules 
for the biggest banks in the country. Think about that for a 
minute. Just 10 years after big banks crashed the economy, 
Senate Republicans and some Dems want to roll back the rules 
that we put in place to prevent the next crash.
    My colleagues may have forgotten about how bad the crash 
was, but I haven't. Millions of people lost their jobs. One in 
54 homes was in foreclosure. $2.6 trillion vanished from 
America's retirement accounts. So why on earth are we going 
back there? Supporters of the bill say this is just about 
helping out the small community banks. No, no, not buying it.
    Community banks are doing pretty well. We are not saying 
they don't need some attention, but this is not about them. The 
FDIC (Federal Deposit Insurance Corporation) says that 96 
percent of them are profitable and these profits are higher 
than ever.
    Again, I want to be attentive and responsive to community 
banks, but this is not about the small banks. The banks that 
are going to benefit here, these are banks that got close to 
$50 billion in bailout money during the crisis and banks that 
can put their name on a football stadium.
    Some of these provisions in this bill roll back the rules 
for the very largest banks like Citigroup and JPMorgan Chase. 
This bill increases the chance of another crash and the 
nonpartisan Congressional Budget Office says the bill will 
increase the likelihood of another bailout.
    I am disappointed that the Senate is likely to pass this 
bill today, and I can promise this committee that I will do 
everything in my power to stop it when it comes over to the 
    And I yield back. Thank you.
    Chairman Huizenga. The gentleman yields back.
    The gentleman from Illinois, the Vice Chairman of the 
committee, Mr. Hultgren is recognized for 1 minute.
    Mr. Hultgren. Thanks, Chairman Huizenga. Thank you all for 
being here.
    According to CoinMarketCap.com, there are over 1,500 
different cryptocurrencies for capitalization estimated at $350 
billion. That is a staggering amount of money.
    As this market develops, Congress has a responsibility to 
ensure that investors are protected without unduly limiting 
opportunities for growth. Some of our most respected technology 
companies have expressed at least some uncertainty regarding 
cryptocurrencies. This is a complicated topic.
    For example, Google just announced it is banning ads 
promoting cryptocurrencies, exchanges, wallets, initial coin 
offerings, and firms providing advice. Congress needs a strong 
understanding of the technology and its application before we 
can understand how it fits into our existing regulations and 
how the laws we have on the books may encourage or inhibit an 
efficient market.
    For example, do we need clarification of what a 
cryptocurrency exchange is and if this word implies any 
investor protections? The SEC staff made this point the other 
day when noting, and I quote, ``many online trading platforms 
appear to investors as SEC registered and regulated 
marketplaces when they are not,'' end quote.
    Similarly, Chairman Clayton has expressed skepticism about 
no initial coin offerings being registered. There are a lot of 
questions in this. I think it important that we are having this 
hearing today.
    My time has expired, and I yield back.
    Chairman Huizenga. The gentleman's time has expired.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman for 2-1/2 minutes.
    Mr. Sherman. Unfortunately, our colleague, distinguished 
Ranking Member was unable to be here this morning, and I ask 
unanimous consent to enter into the record the statement of the 
gentlelady from New York.
    Chairman Huizenga. Without objection.
    Mr. Sherman. Cryptocurrencies are a crock. What social 
benefit do they provide? They allow a few dozen men in my 
district to sit in their pajamas on the couch all day and tell 
their wives they are going to be millionaires.
    They help terrorists and criminals move money around the 
world. They help tax evaders. They help startup companies 
commit fraud, take the money and 1 percent of the time they 
actually create a useful business. But then again, I daresay 
that some tiny percent of all larceny and crime helps finance 
something that turns out to be useful.
    It hurts the U.S. Government in two ways. Our ability to 
have the dollar be the chief means of international finance is 
what has underpinned our ability to impose sanctions and stop 
tax cheating. And furthermore, when we have people take risk we 
don't encourage gambling. We encourage investment in the real 
    But when you buy a Bitcoin are you financing a new factory? 
No. You are gambling on its value for no social benefit. Now, I 
know that these cryptocurrencies are popular. They are popular 
with guys who want to sit in their pajamas and tell their wives 
they are going to be millionaires.
    And they are popular with those who have read ``Atlas 
Shrugged'' and ``Fountainhead'' and believe that these are the 
new canons, the new divinely inspired documents of our age.
    But they are harmful and they are harmful in one other way, 
and that is--and I am going to mispronounce the word, 
seigniorage is the benefit that the U.S. Government gets by 
issuing currency. It is the float. It is the fact that we do 
not pay interest on newly created dollars.
    We lose that as well. And the Fed was able to return well 
over $50 billion to our Treasury in many of the recent years. 
We undercut that.
    And then finally, we have these initial coin offerings 
deliberately naming themselves to lie to the public and convey 
the image that it is like an initial public offering. They 
stole the intellectual property and trademark of legitimate 
investing and applied it to a fixed fraudulent gambling scheme 
of no social benefit.
    Aside from that, I think it is a good idea. I yield back.
    Chairman Huizenga. The gentleman yields back.
    And gentlemen on our panel, you are in for a lively 
conversation. No, this is not a Senate hearing about Dodd-Frank 
reform. You are in the right place. We are here to talk about 
cryptocurrencies and blockchain technologies. But we are here 
to welcome today a great panel.
    And Mr. Mike Lempres, who is the Chief Legal and Risk 
Officer for Coinbase; Dr. Chris Brummer, who is a Professor of 
Law from Georgetown University Law Center; Mr. Robert 
Rosenblum, Partner at Wilson Sonsini Goodrich & Rosati; and 
Peter Van Valkenburgh, Director of Research for Coin Center.
    Each of you will be recognized for 5 minutes to give an 
oral presentation of your testimony. Having read the testimony, 
there is far more than 5 minutes of information in each one of 
yours, so good luck as you consolidate that down.
    We will then have a question period and we will without 
objection put your written testimony into the permanent record 
and part of the record as well.
    So with that, Mr. Lempres, you are recognized for 5 

                    STATEMENT OF MIKE LEMPRES

    Mr. Lempres. Thank you and good morning, Chairman Huizenga, 
Ranking Member Maloney, and members of the subcommittee. Thank 
you for the opportunity to address this important topic at a 
significant time.
    My name is Mike Lempres and I am the Chief Legal and Risk 
Officer at Coinbase, the Nation's leading digital currency 
exchange and wallet service.
    I commend you for holding this hearing on a technology that 
could transform capital formation, innovation, and our economy. 
It has tremendous potential.
    To fulfill that potential, we believe that responsible 
regulation is required, but the technology's incredible 
benefits could also be stifled by regulatory or legal missteps. 
I am pleased to testify this morning on behalf of Coinbase. We 
view ourselves a as leader in the legitimatization and 
maturation of the crypto economy.
    We provide an onramp for acquiring, trading, and holding 
digital currencies. Through our strategy of operating the most 
trusted and easiest-to-use digital exchange and wallet, we have 
grown dramatically. We have very strong cybersecurity 
protections and compliance practices to ensure that we remain 
the most trusted company in this space.
    Our cybersecurity program is state-of-the-art and remains 
the critical core of our business.
    Similarly, our compliance program is designed to build upon 
the highest levels of compliance in our industry. In addition 
to our formal regulatory role, Coinbase continuously shares its 
expertise to make sure that our ecosystem is clean and 
compliant. We train more law enforcement agencies globally than 
    I plan to discuss three items today: The model of the 
Coinbase exchange; our view on ICOs; and the broader regulatory 
environment. The Coinbase exchange operates a spot exchange 
that offers the ability to buy and sell four digital 
    We do not offer margin or derivatives trading. There are 
more than 1,400 currencies and tokens available, and we limit 
our trading to four that have regulatory clarity: Bitcoin, 
Ether, Litecoin, and Bitcoin Cash. Part of the reason we trade 
only those four assets is that each has been determined by 
regulators to be a virtual currency and therefore we believe 
not a security.
    One of today's questions is how to approach ICOs. Coinbase 
currently does not trade ICOs or any other security tokens. 
Despite that, we believe that ICOs are inevitable and full of 
tremendous potential.
    We believe they can unlock the ability of entrepreneurs 
anywhere in the United States to raise money on a level playing 
field. Entrepreneurs won't need to know funders in Silicon 
Valley or New York to access vibrant sources of capital.
    At the same time, there is a need for responsible 
regulation to ensure investor protection. We welcome that 
    In order to fully enable ICOs, investors must have 
confidence in the integrity of the market. For this reason, we 
support enforcement actions where they are necessary to weed 
out bad actors and to protect investors.
    At the same time, we need to be sure that we are not 
chilling good innovation brought about by new technology and 
good actors.
    We believe there is no need for Congress to create a new 
regulator or a new regulatory scheme because Federal regulators 
already have sufficient authority to oversee this space 
effectively. There are at least four Federal regulatory 
agencies that can effectively protect investors and the 
markets: The SEC, the CFTC (Commodity Futures Trading 
Commission), FinCEN (Financial Crimes Enforcement Network), and 
the Federal Trade Commission.
    In addition, this Federal regulatory regime exists 
alongside vibrant State regulations.
    With respect to the U.S. regulatory environment, it is 
important to stress that not all tokens are alike and 
regulators need to be able to distinguish between various 
tokens to enable innovation. This requires regulators to 
coordinate and provide clear guidance to market participants.
    For example, some tokens may be a commodity and others a 
security. The SEC and CFTC should be able to draw a line to 
determine whether a token should be treated as a commodity or a 
security for compliance purposes.
    The agencies have done this before when new asset classes 
emerge, for example, in addressing stock indices and swaps. As 
mentioned in the beginning, we operate the most trusted and 
easiest-to-use platform to access digital currencies. We 
believe that trust is enhanced through partnership with 
    At Coinbase, we are committed to working with you, the SEC, 
the CFTC, and other regulators to help shape a responsibly 
regulated market. We believe the decisions you are making now 
will help determine the future of innovation and capital 
formation. That future is not 20 years away. It is almost here 
    Thank you for this opportunity to discuss these issues, and 
I look forward to answering your questions.
    [The prepared statement of Mr. Lempres can be found on page 
48 of the appendix.]
    Chairman Huizenga. Thank you.
    With that, we go to Dr. Brummer, who is recognized for 5 


    Dr. Brummer. Chairman Huizenga, members of the subcommittee 
thank you so much for inviting me here to testify at this 
hearing. My name is Chris Brummer and I am the Agnes and 
Williams Research Professor at Georgetown University Law 
Center. And I am here today solely in my capacity as an 
academic and I am not testifying on behalf of any entity.
    We are blessed in the United States to have one of the 
safest, deepest, and most liquid capital markets in the world. 
One of the reasons for this success is our system of 
information sharing and dissemination to investors.
    The disclosure system embodied in the Securities Act of 
1933 is largely one where promoters share among other things 
material information publicly about the company, the management 
and the securities being offered, as well as the intended use 
of the proceeds. This information is then filed with the 
Securities and Exchange Commission where it is vetted, 
scrubbed, and analyzed.
    Most ICO disclosures, by contrast, are facilitated by 
unregulated white papers focusing largely on the existing 
technology or technology under development to be financed via 
an offering.
    There is, as a result, a large gap between the disclosures 
and many of the registered filings such as an S-1, and the 
information provided in most white papers. And this raises a 
number of red flags, to say the least.
    For our purposes today, I would like to highlight briefly 
some of the key disclosures one would expect and likely need in 
order for buyers of ICO tokens, whether they are investors 
seeking to profit or technology users seeking to support and 
participate in an innovative product, in order to make a 
purchase in an informed manner.
    These disclosures are relevant, especially relevant, I 
believe, as ICOs transition from technical expert ecosystems to 
the disruption of instruments that are ever more likely to 
attract everyday investors and the retail public.
    Disclosure number one, promoter's location. At least one 
study has noted that in roughly 32 percent of ICOs, it is not 
possible to identify the issuing entities' or promoters' 
origin. This creates serious information asymmetries on the 
part of the investor.
    Without knowing the issuing entities' or promoters' origins 
it becomes impossible to know or identify what rules and legal 
protections might be afforded to investors. Further, investors 
have few means by which to contact relevant public authorities 
in the case of fraud, theft, or loss.
    ICO white papers should therefore set out a detailed 
statement beyond a simple P.O. Box of where the issuer, as well 
as its key management, are located.
    Disclosure number two, problem in proposed technology 
solution. For most of the history of U.S. securities laws, no 
information was more important for investors than an issuer's 
financial statements. But ICOs tend to serve a different 
purpose from IPOs of the 1930's.
    Instead of funding industrial companies transitioning to a 
more mature cycle of development, ICOs involve products 
developed by startups identifying technology-based problems and 
proposing the sale or financing of technology-based solutions. 
And in return for financing, promoters offer coins of varying 
currency, utility, or securities features.
    For most of these offerings, as a rule, is not the 
company's past performance or even financial statements that is 
most important. Instead, it is the ventures technology 
proposition. Consequently, ensuring that investors, including 
retail buyers, understand the basic contours of the underlying 
technology solution is paramount as ICOs become a more popular 
means of fundraising.
    To that end, you can envision a number of important 
reforms. An optimal disclosure system for IPOs would require, 
to the extent possible, a plain English description of the 
technology problem and solution.
    Furthermore for larger fundraises, more technical parts of 
the white paper would ideally be subject to a system of third-
party validation, what could be termed a technology audit.
    And meanwhile, all code, regardless of the size of the 
fundraise, would be posted to a public code repository such as 
GitHub so potential buyers can either diligence the code itself 
or other proxies for the strength of the code.
    Promoters should avoid hyperbole when describing their 
solutions, an endemic problem in many white papers, and should 
be required to identify an objective basis for all forward-
looking statements.
    Along these lines, disclosures should be made as to whether 
post-ICO financial statements will be provided to token 
holders. A description of the token is also useful.
    Promoters should be able to disclose whether or not and how 
the IPO ownership of the company's protocol, as well as to 
detail with specificity, what legal rights holders of the 
tokens will enjoy, as well as how the tokens will be traded and 
on what system.
    They should also be required to provide disclosures for 
blockchain governance and the basic risk factors impacting not 
only the token itself but the industry at large. Thank you.
    [The prepared statement of Dr. Brummer can be found on page 
42 of the appendix.]
    Chairman Huizenga. Thank you.
    Mr. Rosenblum, you are recognized for 5 minutes.


    Mr. Rosenblum. Chairman Huizenga, honorable members, first 
of all, let me thank all of you for holding this hearing. I 
think it is timely. I think it is very, very important and I 
think many people in the industry, those who want to get things 
right, will very much welcome your participation and your 
interest in the topic. So again, thank you for holding the 
    I am a partner at the law firm of Wilson Sonsini Goodrich & 
Rosati, a Palo Alto law firm that is generally recognized as 
being a leading advisor to technology firms, to life sciences 
firms, and the like. I am the head of the firm's blockchain and 
cryptocurrency practice.
    Now, I do need to say that I am appearing here on my own 
behalf, not on behalf of my law firm, not on behalf of any 
client. However, thank you for having me anyway.
    In our capacity as being among if not the leading tech 
firm, we obviously handle a great number of initial coin 
offering and similar transactions. We represent a large number 
of ICO issuers, we represent a large number of funds that 
invest in initial coin offerings, we represent a large number 
of entities, often very sophisticated entities, that are 
investing in initial coin offerings.
    I will give you a quick observation that, about 9 months 
ago or so, the ICO market really started to become significant 
in the United States. I was concerned, as some of the comments 
we have already heard, as to whether there was really a there 
    As I will talk about in a couple of moments, I think there 
really are some very important things happening in this market 
and again I think that is why it is so important for this 
subcommittee to be focusing on these issues.
    I actually have two basic proposals or two basic 
suggestions for this subcommittee: First, I think in the near 
term, Congress could greatly help the markets, the ICO markets, 
to facilitate good ICOs and to help guard against fraud.
    By authorizing the SEC or by authorizing and encouraging 
the SEC and other appropriate Federal regulators to both modify 
and amend their rules to better assist ICO issuers in meeting 
the requirements of the Federal securities laws.
    As Dr. Brummer says, there are already a number of 
disclosure issues, there are already a number of registration 
requirements to securities issuers. They don't work well. They 
are not geared toward ICOs and to tokens and so the SEC can be 
doing a lot more. Although they are trying very hard, they can 
do a lot more to amend their rules and modify their rules and I 
think this committee can help.
    I think in the longer term, this committee can lead the way 
toward having a more unified disclosure approach, registration 
approach, overall legislative approach to how we handle ICOs 
and token use in the United States.
    Truthfully, I think it is too early to know exactly what 
the contours of that legislation are going to look like at this 
point. Again, we are only 9 months in really to ICOs.
    The industry is so dynamic and changing so quickly that I 
think it would be premature at this point to try to actually 
craft that legislation, but I do think that there are basic 
principles that can help us inform what that legislation will 
look like when you are able to get to it.
    I think there are three things though that in all of your 
legislative activities that we should be keeping in mind. One 
is there is tremendous innovation in the blockchain and 
cryptocurrency community. And by the way, cryptocurrency is a 
bit of a misnomer.
    There are some tokens, Bitcoin, Ether, for example, that 
really are cryptocurrencies. There are a number of other 
tokens, and those are most of those that we will probably be 
talking about today that have very specific purposes on very 
specific platforms, designed to do very special things.
    Second, there are tremendous capital-raising techniques and 
I hope during this hearing we will be able to discuss why those 
capital-raising techniques or opportunities are so significant 
and potentially so valuable to the U.S. economy.
    Third, there is no getting around the fact that there is 
significant fraud, significant opportunities for market 
manipulation, significant opportunities for loss of privacy and 
data breaches. And those need to be part of and considered in 
any regulatory and legislative response. With that, let me end 
my remarks and thank you so much.
    [The prepared statement of Mr. Rosenblum can be found on 
page 55 of the appendix.]
    Chairman Huizenga. Thank you.
    Mr. Van Valkenburgh, you are recognized for 5 minutes.


    Mr. Van Valkenburgh. Thank you, Chairman Huizenga and 
members of the committee. I am Peter Van Valkenburgh, Director 
of Research at Coin Center, an independent non-profit that is 
focused on the cryptocurrency public policy space. Today, I 
will start by describing the fundamental innovation of Bitcoin, 
then discuss the differences between cryptocurrencies and ICOs, 
and finally describe the regulatory landscape for these 
    The fundamental innovation of Bitcoin is digital scarcity. 
So in the physical world a thing like gold is scarce because 
you can hold it in your hand. You can ask a lab to tell you 
that it is real and when you hand it to somebody else they have 
it and you don't. But in the digital world, how can we know 
that a Bitcoin is scarce?
    We know that there are only 16.9 million Bitcoins in the 
world right now because their distribution and movements are 
described with perfect accuracy on a public ledger called the 
Bitcoin Blockchain. Anyone can independently read and 
mathematically authenticate the data in the blockchain just 
like anyone can independently verify the scarcity of gold.
    Now that digital scarcity can then be employed by 
innovative people for a variety of innovative purposes. A token 
that is scarce and transferrable from person to person can be 
used as money just like any other portable and transferable 
good throughout history from gold to seashells. That, in a 
nutshell, is Bitcoin.
    But a scarce token can also be automatically redeemable for 
a digital good or computing service provided by the same 
network of participants who verify the blockchain. And these 
are projects like Ethereum, Filecoin, and Blockstack and they 
are beginning to compete with incumbent service providers like 
Amazon, Facebook, and Google.
    A scarce token can also represent a legal agreement or a 
financial asset. So a public company or investment fund could 
issue and track its shares as tokens on a blockchain.
    Now, these blockchains are just records. Whether they are 
about money, assets, or computation, but rather than relying on 
a handful of corporations running vulnerable datacenters to 
keep the record, a blockchain version of the record relies on 
an open network of thousands, potentially millions of 
participants who have skin in the game and independently verify 
and secure that data.
    Those records will always be available until every last 
participant goes offline. In other words, they will likely 
always be available.
    And those records will be accurate unless every participant 
has their individual computer hacked. In other words, they will 
likely always be accurate. It is this revolutionary-
decentralized architecture that makes these systems effectively 
unhackable, at least using traditional methods of attack.
    Especially pertinent to today's hearing, these technologies 
are also employed for capital formation. Scarce tokens like 
Bitcoin and Ether already exist in the world and they are in 
use. But other coins and tokens are merely theoretical because 
the software that will enable them has yet to be designed and 
    Recently, various developers have raised money to fund the 
development of new blockchain software projects by selling a 
promise of future tokens to willing investors in so-called 
initial coin offerings or ICOs.
    From a regulatory standpoint, there is a fundamental 
distinction that must be made between, on the one hand, scarce 
tokens that exist on a blockchain and are used for payment or 
to obtain computing services, and, on the other hand, promises 
of future tokens representing the hopefully profitable efforts 
of a developer.
    The former, things like Bitcoin and Ethereum, they are 
effectively digital commodities. They are scarce items that may 
have value on open markets as money, as investments, or as 
inputs for valuable commercial and industrial processes. They 
are commodities, just digital.
    The latter, promises of future tokens, are securities. 
Promises from issuers to investors that efforts will be put 
forward to create profits. Now, both have investor protection 
risks, but they are distinct risks that are best addressed in 
different ways. A commodity-like token has no issuers upon whom 
investors rely.
    But the token does trade on speculative commodities 
markets. Policing these markets for fraud and manipulation is 
critical for investor protection. A promise of future tokens is 
a security with an issuer upon whom investors rely. Mandating 
accurate disclosure from these issuers is, as we have said, 
critical for investor protection.
    So the sensible and emerging investor protection regime is 
nothing new even though the underlying assets may seem like 
science fiction. The CFTC should use its existing authority to 
police commodities, spot markets for fraud and manipulation and 
the SEC should manage and mandate disclosures from issuers 
making securities offerings.
    But if policymakers get the line between commodity tokens 
and securities offerings wrong or if it isn't made clear by 
regulators, it will destroy the viability of these innovations 
and cede leadership in this technology to the rest of the 
world. Thank you and I look forward to your questions.
    [The prepared statement of Mr. Van Valkenburgh can be found 
on page 76 of the appendix.]
    Chairman Huizenga. Thank you, and I appreciate all of your 
    We are going to start with a 5-minute question period for 
myself. I recognize myself here. I want to try to cover a 
couple of quick things. Investor protections, first and 
foremost, the SEC versus the CFTC, and then use of blockchain 
    So on that investor protections part, maybe Dr. Brummer you 
could illuminate for us here a little bit on what current 
protections you see or lack of current protections that are in 
place to really protect Mr. and Mrs. 401(k). We have 
institutional investors, sophisticated investors, and then we 
have more retail investors.
    So if you could address that quickly please?
    Dr. Brummer. At this point in time, the SEC is working on 
really operationalizing some of its own powers and authority 
under the 33 Act, 34 Act, and the 40 Act for the mom-and-pops, 
for the investors who are increasingly having exposure to 
cryptocurrency markets, for the better in some instances, and 
for ill in others.
    There is a regulatory vacuum currently. That regulatory 
vacuum extends, to some extent, to the spot market in 
cryptocurrency. I think that where there are financial products 
that under traditional analyses would tend to be identified as 
commodities there are questions about disclosure that are 
required to be asked.
    I think that even in the securities law space the 
infrastructure on which many of these tokens are currently 
being traded are not entirely subject to the SEC's oversight. 
So there are rules that are in place but it is a mishmash.
    Chairman Huizenga. I am going to get to Mr. Rosenblum here 
because you had said that, here is how I have encapsulated it 
    The SEC is trying to do its job to protect investors and 
you say it needs to modify the rules to help facilitate ICOs 
but you say it is premature to draft legislation.
    Now, both Chairmen Clayton and Giancarlo had said, along 
with their current counterparts from the Department of Treasury 
and Federal Reserve and others, that they may come to Congress 
here in the coming months and we know that this has moved very 
    In the last 9, 10 months we have seen this explosion of it. 
This panel, this Congress is not going to sit by idly with a 
lack of protection for investors and you have heard some of my 
colleagues express some skepticism of the legitimacy of 
cryptocurrencies and certainly ICOs.
    So I want to look at what, very quickly, what the role 
Congress may be to play in this and what chilling effect it may 
have from your opinion quickly.
    Mr. Rosenblum. Yes, thank you, sir. First, I think that 
there are, in particular, two parts of the legislation. I think 
there is an immediate set of legislation that needs to happen 
to authorize the SEC and other regulators to amend modified 
rules consistent with investor protection but also to 
facilitate capital development or capital investment.
    That is not to say there won't also be additional grants of 
power or additional protections that Congress adds but what my 
other point is, this industry is moving so very rapidly.
    It is very difficult to know, here is one example, if you 
take blockchain, which has a tremendous capacity to store, 
record, and retain information and you mix that with artificial 
intelligence which is certainly something people are trying to 
do today. The capacity of artificial intelligence combined with 
the blockchain to potentially lead to tremendous new marketing, 
tremendous new business opportunities, tremendous scientific 
and sociological advances is tremendous.
    However, the opportunity to advance our agility to use that 
same technology for a manipulative conduct or a data breach, 
and for all sorts of other, what I will refer to as nefarious 
conduct, is really hard to predict right now. And so what I 
don't want to do is lock us into a system too early.
    And I will give you one more--
    Chairman Huizenga. And I don't disagree, and unfortunately 
I am running out of time. We will be able to hopefully explore 
this with some other questions.
    Mr. Lempres, I would like to get to you very quickly. Do 
you believe that there are any certain instances where initial 
coin offerings should not be regulated as an offering of 
    Mr. Lempres. Thank you for the question. It is difficult to 
answer because it is hard to imagine all the circumstances 
under which ICOs might be offered. I think that speaking on 
behalf of Coinbase, we do not support any initial coin 
offerings at the current time because we are not sure the way 
the regulatory structure is and inventory treatment is.
    It would be appropriate--
    Chairman Huizenga. In your written testimony you talked 
about the CFTC quite a bit, the SEC not so much, and I have had 
some express that they believe the CFTC has been more flexible 
and open and receptive to ICOs and in blockchain. I don't know 
if that has been your experience as you have viewed it.
    Mr. Lempres. Yes. Let me say, our experience is we are 
waiting for the dust to settle between the CFTC and the SEC 
before we will actively engage in supporting ICOs.
    Chairman Huizenga. OK.
    Mr. Lempres. And once the rules are clear we will move in. 
We think there is tremendous potential. We want to be there to 
support it. I will say that there is an important distinction 
between what is a security and what is a commodity. They 
perform different functions and they do deserve to be treated 
    Chairman Huizenga. Yes. I am well over my time. There is no 
doubt though a token is not gold and a commodity as such, so I 
think that is some of the struggle that we have. So with that 
the Chair recognizes the gentleman from Georgia, Mr. Scott, for 
5 minutes.
    Mr. Scott. Thank you, Mr. Chairman. And Chairman Huizenga 
you have opened up a line of discussion here that I would like 
to follow up on.
    Mr. Lempres, in your testimony, you said that you believed 
there is no need for Congress to create a new regulatory 
regime. You have said you felt that the Federal authorities 
already had that authority and that it was basically just a 
lack of coordination.
    But Mr. Lempres, both the SEC's Chairman Clayton and the 
CFTC Chairman Giancarlo have told me that neither one of them, 
the SEC nor the CFTC, have any regulatory authority. And, as a 
matter of fact, they said what regulation there is at the State 
level they are regulating these entities as if what they refer 
to as money transmitters.
    So it seems to me that there is some type of regulatory 
shortfall here and if you ask me it is a little bit of that and 
not just a lack of coordination. So you see my point there?
    Mr. Lempres. Yes, Congressman, thank you, I do. What I 
would say is that there are sufficient authorities in place 
today. And I would point out that there is a long--
    Mr. Scott. So you are saying that the Chairman of the SEC 
and the Chairman of the CFTC are wrong?
    Mr. Lempres. Of course not--
    Mr. Scott. They say that that is not so.
    Mr. Lempres. No. What I am saying, though, is I think in 
context what is happening is when you talk about money 
transmission licenses, that covers a portion of our activity as 
a business. We are in many ways an integrated business, a 
portion of which is licensed by the States for money 
transmission purposes.
    Mr. Scott. Yes, but it is done at the State level. There is 
none at the Federal level.
    Mr. Lempres. Well, respectfully, Congressman, I would also 
point out that, again staying at the State level, we have a 
BitLicense with New York State, which is indeed a comprehensive 
consumer protection license that covers crypto activity within 
the State of New York.
    On the Federal level, I would respectfully say there is 
regulation of commodity markets just the way there is 
regulation of commodity markets everywhere else and that this 
new asset, which is not a physical thing that you hold in your 
hand, still has many of the characteristics of a commodity.
    Mr. Scott. Well, my time is getting short, I want to--there 
is so much here. This is an exciting new area, and we are 
discovering a lot here but let me switch to the ICO issue.
    Now Mr. Rosenblum, in your testimony, you said you believe 
it is too early for Congress and the Federal regulators to 
enact a comprehensive legislative or regulatory scheme 
governing cryptocurrency.
    Now, I can assure you I am the Co-chairman of the FinTech 
Caucus and I can assure you that none of us on that caucus or 
on this committee want to be killing good innovation, 
especially one that is raising, as this is, billions of dollars 
of capital because it is very important for everyone to know 
and as CSPAN is broadcasting this, but it is important to know 
that as of February 2018 individuals and businesses raised 
$1.66 billion through initial coin offerings or ICOs.
    So I agree with you, Mr. Rosenblum. However, going back to 
the SEC and the CFTC, they have not proposed rules regarding 
the regulations of cryptocurrency and other digital assets and 
instead have relied on informal rulemaking or enforcement 
    So I want to ask you in particular Mr. Rosenblum, and 
others on the panel, what in your minds could the Federal 
regulators be doing better and do you believe that enforcement 
actions and other formal guidance are sufficient to regulating 
these emerging and exciting digital assets?
    Mr. Rosenblum. Congressman Scott, thank you for the 
question. I agree with the point that you are moving toward or 
that you are suggesting here, which is regulation by 
enforcement in an area that is as complicated and dynamic as 
this, is not the appropriate way to regulate.
    Enforcement is necessary, of course, however, I do agree 
with you entirely that we need clearer guidelines, a clearer 
understanding of how the SEC's registration rules, its market 
trading rules, its exchange rules, its investment company and 
investment advisor rules should apply and do apply. And that is 
not something you can do by regulation through enforcement.
    And that is again one of the reasons I think this 
subcommittee and this hearing is so important to this process 
because we do need more guidance on precisely those areas.
    Mr. Scott. Thank you, Mr. Rosenblum.
    Chairman Huizenga. The gentleman's time has expired.
    With that, the Vice Chairman of the committee, Mr. Hultgren 
for 5 minutes.
    Mr. Hultgren. Thank you, Chairman Huizenga.
    Thank you all for being here. I appreciate your work and 
this is something that we are all interested in learning as 
much as we can.
    I want to address my first question to Mr. Lempres if I 
could? Your testimony mentions that you store more than $20 
billion worth of digital currency and have traded over $150 
billion in assets.
    In light of the January 2018 hack of the Coincheck 
cryptocurrency exchange wherein $534 million was stolen, I have 
a few questions for you related to that cybersecurity side of 
this. I wonder what cybersecurity standards does Coinbase 
adhere to?
    Mr. Lempres. So thank you for the question. And the reason 
I am hesitating, this is not my area of expertise, and I 
apologize when we get into this stuff. But I will say that our 
cybersecurity protocols are, I believe, state-of-the-art.
    That we have an entire team, obviously, that does nothing 
but work with cybersecurity. Approximately 99 percent of the 
assets that we hold are held offline in what is known as cold 
storage, which makes them virtually immune to hack.
    We do have a hot wallet process for, in effect, if you 
think about it, the cold storage is akin to a vault, the hot 
wallet is akin to a teller window at a bank. The hot wallet is 
online obviously and we have that amount fully insured to 
protect the consumers and investors as to that.
    Mr. Hultgren. Are there any, if you know about it and we 
can follow up in writing, too, or you can let us know who the 
person is that you recommend with Coinbase that we talk to, but 
is Coinbase legally required to follow any Federal 
cybersecurity laws and regulations, for example, financial 
institutions and some service providers are subject to Gramm-
    Securities exchange and other SROs are subject to SEC's Reg 
SCI (Regulation Systems Compliance and Integrity). Are there 
any other Federal cybersecurity laws or regulations that 
already apply to Coinbase and others like you?
    Mr. Lempres. Yes, first off, I am more than happy to get 
you the name--
    Mr. Hultgren. That would be great.
    Mr. Lempres. --Of the head of our security. And second, I 
believe the cybersecurity standard that we most adhere to is 
New York State's standard through their BitLicense, which takes 
quite a lot of work.
    Now, we are also working with a few of the big four 
accounting firms to develop appropriate standards to make sure 
everything is SOC 2 and other standards.
    Mr. Hultgren. OK. I think you answered this, but maybe just 
for clarification? In the event of a hack of your platform that 
results in the loss of assets, is there a guarantee that is 
provided to the purchasers of the assets through your platform?
    Do you have any legal responsibility for safekeeping of 
client's assets? And what other protections are afforded for 
your customers in the event that the hot wallet is hacked? You 
mentioned that but I--maybe just go into a little bit more 
detail on that if you have any?
    Mr. Lempres. Sure. So again, we do hold a little bit of 
fiat currency, USD--United States dollars. Those are held in 
banks which do have FDIC insurance as to those dollars.
    As to our cryptocurrencies, there is no Federal insurance 
program to which we belong. We have attempted to create a 
degree of comfort amongst our customers by insuring the hot 
wallet amount. I will note that to date we have not been 
hacked. We have never had to make a payment out under those 
insurance policies.
    Mr. Hultgren. OK. Hope it continues that way. Your 
testimony also mentions that the exchange only support four 
assets because each has been determined by regulators to be a 
virtual currency and therefore not a security. However, you go 
on to note that regulators are not providing enough clarity for 
other cryptocurrencies.
    How did you establish the regulatory and legal certainty 
for those four currencies that you currently support or have; 
do the SEC or the CFTC individually provide guidance for those 
four currencies? Or did Coinbase make a determination about 
these four currencies based on the SEC-CFTC guidance?
    Mr. Lempres. Yes. We have received some guidance certainly 
as to those four examples. The CFTC has explicitly found and in 
fact published a primer that listed three of those assets as 
cryptocurrencies. The fourth, Bitcoin Cash is a hard fork which 
is in effect a derivative of Bitcoin. It would be covered by 
the same reasoning.
    Mr. Hultgren. OK.
    Mr. Lempres. There are some court cases that refer to them 
as cryptocurrencies and the SEC itself has distinguished 
between cryptocurrencies and securities. Specifically in the 
DAO Report they referred to Ether as a cryptocurrency in the 
context of discussing securities.
    Mr. Hultgren. OK. You also mentioned in your statement, and 
I am out of time, so we will--if that is OK if I can follow up? 
And I have questions for others. Sorry 5 minutes goes way too 
fast, but thank you all for being here. Again, we want to 
understand this as much as we can, but grateful for your 
testimony. And we will follow up with other questions if that 
is all right.
    With that, I will yield back.
    Chairman Huizenga. The gentleman yields back.
    And it may behoove the Chair at this time to note that we 
will be having an opportunity to forward questions through the 
Chair to the panel. And depending on our time, as well, and 
participation we may be able to get to a second round of some 
questioning so--with your indulgence.
    So we will continue to move along. And with that, Mr. 
Ellison from Minnesota is recognized for 5 minutes.
    Mr. Ellison. Thank you.
    And now let us talk about cryptocurrencies a little bit. In 
my meetings with constituents over the last several months, I 
have had many of them say, ``hey, what is going on with this 
cryptocurrency? I heard that it started at really low 
valuation; now it is really high and it is up and down. Should 
I get into it?''
    I am like, ``well, look, I am no investor. I can't tell you 
what you should do,'' but it did occur to me that I should ask 
you experts. If somebody who is not sophisticated in this area 
wants to invest, what should they know in advance? Could you 
all talk about what the hazards might be for an unsophisticated 
investor in this area?
    Dr. Brummer. So that is a great question. It is an 
important question. And I would certainly say that given the 
complexity of many of these instruments it is very dangerous.
    One of the disclosures that I had suggested would be really 
critical, particularly as retail investors become more 
interested in this space, is to understand what the risks are 
when it comes to investing. It is not only that they can lose a 
lot of their money but they can lose all of it, and that it is 
not just the specific venture itself that creates risk.
    It is not even the cyber risks or the potential for 
hacking. But it is a very dynamic ecosystem, that there are 
certain kinds of changes in the nature of the technology where, 
say, Internet-based principles become embedded in the 
blockchain and leave some of the blockchain technologies that 
we are depending on now rather obsolete where the tokens tied 
to them then become ultimately worthless.
    That these are the kinds of risks that retail investors 
themselves may not necessarily understand even where they may 
have some basic--and if not only hazy understanding--of the 
technology itself. And as a result, because just like you, I 
will sometimes go to the gym and people will ask me, so tell me 
about bitcoin.
    I think that that is always the sign of trouble, of 
sometimes either a potential for investors to not be properly 
informed about where they are putting their hard-earned savings 
and, as a result, there is a need for much more fulsome 
communications with those who are seeking or who may be 
interested in participating in those markets.
    Mr. Ellison. So over the course of 2017 we saw some 
precipitous increase in value. We saw some drop. We exchanged a 
lot. What do you think is driving some of those swings? Is it 
regulation or the threat or the possibility of it?
    Dr. Brummer. I think it is a product of speculation. I 
think it is a product of--
    Mr. Ellison. Bubble?
    Dr. Brummer. --Yes, of a bubble certainly. It is a product 
of investors who are money chasing investments instead of 
investors chasing money. It is a product of inadequate 
disclosure. And as a result, I think, just to echo some of the 
comments here on the panel, that regulation can be very healthy 
for those markets.
    It can help to address some of the spikes in volatility and 
the patterns of fear, the bubbles. But that action is needed 
    Mr. Ellison. So we are--yes sir?
    Mr. Van Valkenburgh. I would only add that we have had a 
long history of technology bubbles. I think a lot of what is 
happening in blockchain technology looks rather like the dot 
com bubble of the late 1990's, early 2000's.
    And I think that is important for Main Street investors to 
understand, and educational programs from the CFTC like LabCFTC 
and educational advisories from the SEC are critical because in 
the late 1990's it would have been extremely correct to say 
that Pets.com is overvalued, extraordinarily overvalued and 
they are going to blow all their money on a Super Bowl ad. And 
there are some projects in our space that look like that.
    But it would also be incorrect to say that Amazon.com was 
overvalued. And I think that is why we see the froth in these 
markets because a lot of these projects, say Filecoin or 
Ethereum or Zcash, are challenging major multinational 
    And if any of them succeed they will be in the future as 
valuable and as critical as the infrastructure that those 
corporations created. But that is a highly speculative bet.
    Mr. Ellison. I only have time for one last question from 
one last person. So we are talking about regulation here in the 
United States the discussion is on, but what about other 
countries and how does that impact this conversation? Anybody?
    Dr. Brummer. So we have been looking particularly over at 
Georgetown, some of my colleagues and other people certainly on 
the panel, at how interoperable are rules and approaches? The 
CFTC I know has been very interested in terms of information 
transfers, information exchanges between regulators.
    I think that one important component to these projects--
LabCFTC was mentioned; I think that is certainly an important 
and healthy program, but to think through also how do we 
include more than just a market access component to those 
agreements and to push our regulators to also incorporate in 
the FinTech space questions of a coordinated regulatory design, 
information sharing, and enforcement?
    And I think that that would help to make sure that we can 
export some of our best values and approaches abroad and to 
take best lessons learned overseas and to incorporate them 
    Chairman Huizenga. The gentleman's time has expired.
    With that, the Chair recognizes the gentleman from Ohio, 
Mr. Stivers, for 5 minutes.
    Mr. Stivers. Thank you, Mr. Chairman. I really appreciate 
you holding this very important hearing on a topic that has a 
lot of people's attention.
    The first question I have, and I am going to try to ask 
three questions, we will see how it goes--is to Dr. Brummer. 
Can you talk a little bit about the promise of blockchain 
    Let us take a couple steps backward and talk about the 
promise of blockchain technology to make our financial system 
more transparent and efficient and--well, not transparent--
efficient. And what blockchain technology can mean, both for 
financial transactions and other things in our economy?
    Dr. Brummer. I think that the value in blockchain 
technology, and it is very useful for us all to remember that 
blockchain technology has its applications not only in the 
financial space but in other ecosystems, everything from 
pharmaceuticals and health and real estate and property.
    But it provides a platform whereby, in a very decentralized 
format, you can create a systems, a ledger, a methodology, and 
mechanism for tracking things and transactions in a way that is 
extraordinarily difficult to tamper with. And it allows for the 
disintermediation of certain kinds of folks in the middle that 
allow for a cheaper transaction experience.
    I think that precisely because it is embedded in online 
technologies the ability to fully lever--or right now I am 
going to talk about the upside for just a moment, because I 
have certainly been emphasizing that there are--
    Mr. Stivers. And I would like you to wrap this up in about 
15 seconds.
    Dr. Brummer. In 15 seconds.
    Mr. Stivers. Keep going, but--
    Dr. Brummer. Yes. The difficulty is that to the extent to 
which you are operating online there is more that the Federal 
regulators can do in terms of investor protection, but it also 
then raises questions. Someone had mentioned money transmitter 
laws as to how do you coordinate--
    Mr. Stivers. That is my third question. We will get to that 
in a second. So--
    Dr. Brummer. All right.
    Mr. Stivers. So my second question is for Mr. Van 
Valkenburgh. Can you help us understand the difference between 
a token that is used as a commodity and the promise of tokens 
that becomes a security? And if you can do it in about 2 
minutes that would be great because we have 5.
    Mr. Van Valkenburgh. It is a great challenge and happy to 
try and answer. Thank you for having me. So we have a flexible 
test in the U.S. for what is a security. It is derived from a 
case called the Howey case. And that test can be applied for 
promises of future tokens.
    What you are really looking for are two things, an 
expectation of profits--I am simplifying--reliant on the 
efforts of an issuer or third-party promoter.
    So that is why this promise of future tokens is critical to 
thinking about why an ICO is a security even though other 
things might not be because we have a definable or discernible 
issuer who is promising to build something of profound economic 
value, but we are relying on them to actually keep that 
promise. And that is why it fits the test for an investment 
contract or a security.
    Now, a digital commodity might be a digital commodity for a 
number of reasons. We use commodities for money. We use 
commodities as investments. We use commodities as inputs for 
commercial industrial processes. And the same thing is true of 
digital commodities like Bitcoin or Ethereum or Filecoin, once 
Filecoin is built.
    Now, it is important to note that Filecoin is raising money 
to build itself, but once it is built it will be a commodity.
    And I will just quickly go through those three because they 
are great examples of what I mean by digital commodity. Bitcoin 
is nothing but something that is scarce and transferrable 
person-to-person. And that is why I make the metaphor to gold. 
It is very different than gold, but like gold I could hand it 
to another person and if that is valuable on markets that may 
be valuable and used as a medium of exchange or a store of 
    Mr. Stivers. And I want to do one more question and I have 
58 seconds, so if you could--
    Mr. Van Valkenburgh. Yep, yep.
    Mr. Stivers. --Give me the other two quickly?
    Mr. Van Valkenburgh. Ethereum is a computing system on the 
Internet and in order to get access to that computing system to 
get useful results you use Ether as a fuel to power that engine 
on the Internet. It is a commodity like oil.
    Mr. Stivers. And the last one?
    Mr. Van Valkenburgh. And Filecoin, the last one, is rather 
like digital real estate. So you use Filecoin to get storage on 
the Internet. So it is a commodity like real estate, if you 
want to think of real estate as a commodity, measured in 
gigabytes instead of square feet.
    Mr. Stivers. Great, thank you.
    And one last question for the whole panel, and I know this 
is slightly off topic but because it has come up, if folks 
could comment on whether they feel like FinCEN's 2013 guidance 
on the appropriate level of anti-money laundering and Know Your 
Customer safeguards are appropriate. Or do you think that they 
are being abused out in the system? Do you think there is more 
information needed on those issues?
    If we could just go down the panel, anybody that is 
interested in answering that one?
    Mr. Van Valkenburgh. I think it is a very sensible piece of 
guidance. It was written early on in the space and it created a 
lot of clarity, especially for exchanges. And that is why all 
U.S. exchanges that I am aware of are collecting information on 
their customers and filing suspicious activity reports and 
keeping the financial system transparent even if it is 
    Mr. Stivers. Thank you.
    I yield back, Mr. Chairman.
    Chairman Huizenga. With that, the Chair recognizes the 
Ranking Member of the committee, Mrs. Maloney, for 5 minutes.
    Mrs. Maloney. Thank you. My apologies. I had to Chair for 
the Democrats another meeting, but this is an incredibly 
important issue. Thank you, Mr. Chairman, for calling it.
    Mr. Lempres, as you know, my good friend and colleague Mr. 
Cleaver sent letters last month to the Bitcoin Foundation and 
the digital Chamber of Commerce asking what they are doing to 
prevent extremist groups like those involved in the White 
Nationalist Movement from using cryptocurrencies to fund their 
campaigns of hate?
    And I have also seen evidence that cryptocurrencies are 
used heavily by sex traffickers to sell women. So this is a big 
problem and one that Ann Wagner and I have been working on.
    As Coinbase is one of the largest cryptocurrency exchanges 
in the world, what are you doing to prevent these extremists 
from using your exchange to fund their activities? Do you have 
a set of standards or--thank you.
    Mr. Lempres. Yes, thank you for the question. Let me first 
off say that we take that very seriously. Specifically with 
regard to hate groups, for example, we have a specific section 
of our terms of use that we rely on and we kick people off the 
platform anytime we see anything that constitutes--
    Mrs. Maloney. Thank you.
    Mr. Lempres. --Either encouraging or facilitating hate on 
there, through our network.
    Speaking more broadly on bad actors and the things we do to 
track them down, one of the nice things about this technology 
is it actually gives you insights that you can't get in any 
other financial instrument currently because of the nature of 
the blockchain, which is an immutable permanent record that is 
publicly available.
    We use both internally developed and commercially available 
blockchain analytic tools which actually give us quite a bit of 
insight into connections between individuals. If, for example, 
we identify some kind of bad node or some bad activity, we can 
track to see who has touched that and what relationship they 
would have with anybody else who might have touched that.
    I should mention that we are members of the Bank Secrecy 
Act Advisory Group. We work very closely with FinCEN. We file 
an awful lot of SARs. We have, just to show how important we 
view this space, nearly 20 percent of our total employees are 
dedicated toward compliance.
    Mrs. Maloney. Thank you. And as I have said before, I am 
extremely concerned about virtual currencies because a lot of 
average people are using it and believing that it is an 
investment tool. They are pouring their life savings into 
virtual currencies and they stand to lose a lot of money when 
this bubble eventually bursts.
    Some people are treating these things as investments, not 
as currencies. And that is a huge problem because there are no 
investor protections like we have for stocks and bonds.
    So I am working on a bill that would regulate virtual 
currencies but not the technology, that have the 
characteristics of an investment like we have always regulated 
investments with robust investor protections, including 
disclosures, which will be regulated by the SEC.
    So Professor Brummer, let me start by asking you a 
question. Do you believe that the definition of a security in 
current law encompasses all virtual currencies?
    Dr. Brummer. No, I don't believe so. The Howey test, which 
is long the standard for evaluating nontraditional financial 
products in determining whether or not they fall within the 
SEC's regulatory perimeter, establishes several key 
characteristics and benchmarks that have to be satisfied.
    And I think that when you apply them to some of these 
virtual currencies like Bitcoin you get less than fulsome 
results according to those benchmarks.
    Mrs. Maloney. So if we wanted to regulate virtual 
currencies that are being treated as investments and to require 
adequate disclosures to investors would Congress need to expand 
the SEC's authority, in your opinion?
    Dr. Brummer. They would need to expand the SEC's authority, 
    Mrs. Maloney. And I liked the part of your testimony where 
you describe what kinds of disclosures should be made to people 
who invest in initial coin offerings. And I agree that the SEC 
can tailor the required disclosures so that they are 
appropriate for digital tokens and virtual currencies, which 
are different from traditional securities.
    Do you think that requiring these kinds of basic 
disclosures would stifle innovation in this space or harm the 
development of the blockchain technology?
    Dr. Brummer. I really don't think so. The kinds of things 
like I outlined, adding mailing addresses--
    Mrs. Maloney. And I have 15 seconds left. Professor 
    Chairman Huizenga. I am being generous with the time.
    Mrs. Maloney. Oh, no, I know my colleagues need time, too. 
What do you think of the idea of subjecting virtual currency 
exchanges to minimum cybersecurity standards? Do you think this 
is necessary in light of the huge cybersecurity risks that 
virtual currency exchanges face?
    Dr. Brummer. I think that would be extremely helpful. 
Cyber-security is perhaps the number one challenge facing our 
financial markets infrastructure providers and, to the extent 
to which you want to provide those financial services, you 
should be subject to certain kinds of high expectations about 
the cybersecurity of your operations.
    Mrs. Maloney. My time is more than expired. Thank you so 
very much.
    Thank all of you. Thank you.
    Chairman Huizenga. With that, the Chair recognizes the 
gentleman from Minnesota, Mr. Emmer, for 5 minutes.
    Mr. Emmer. Thank you, Mr. Chair, appreciate it.
    Appreciate all of you being here. This is a huge topic that 
cannot possibly be even scratched, in my mind, in 5 minutes 
with each of the people that are up here. I have a whole litany 
of questions, which I know my office will follow up through the 
Chair with each of you.
    I think where I want to go this morning after listening to 
you, because I find myself maybe not with my colleagues on some 
of this. I have a problem with, ``Government is here to help us 
and we need more Government. We are going to have to go into 
this new frontier and we have to have more regulation.''
    I heard at the beginning we have a regulatory vacuum. That 
scares me to death. I tend to trust people before I distrust 
them. I tend to believe that people are in these things for 
good, that they are trying to improve their own lives and 
hopefully the lives of people around them, that old adage of 
``A rising tide lifts all boats.''
    And yet I hear elected officials who don't have any concept 
of what we are dealing with here and how exciting it is talking 
about oh, my gosh, we have to run in. We have to regulate. We 
have to create more Government infrastructure. And by the way, 
I respectfully disagree with the idea that that won't act as a 
wet blanket on this amazing new technology.
    What we are talking about here is blockchain. Blockchain 
technology applies all over the place. It can solve some of our 
cybersecurity issues.
    These are open transactions where--and Milton Friedman, of 
all people, predicted this back in 1999 when he said there will 
come a day in the financial services space where you will be 
able to do this over the Internet where A will have a 
transaction with B and it will be entirely open for people to 
see. But A won't know B and B won't know A.
    You can know that and you can see things. I think Mr. 
Lempres was talking about how you can see things through the 
blockchain that are going on.
    I love the fact that Mr. Rosenblum talked about examples of 
blockchain technology outside of this space. And I will tell 
you in Minnesota we have a company called BanQu that is using 
blockchain to provide digital identities to unbanked and 
underbanked individuals in order to build a credit history and 
access capital.
    That is something that Democrats and Republicans should be 
celebrating here in Congress, not going, ``oh, my gosh, this is 
terrible. We don't understand it. We need a new policeman or we 
have to take the policemen we already have and give them even 
more powers to start to invade this space and perhaps frustrate 
the development.''
    I have concerns. I realize there has to be some regulation, 
but it is the balance. And I have heard from the panel that we 
have regulation already in place; we just need clarity.
    Mr. Lempres, why don't I start with you? You talked about 
we have to be able to say what is a security in this space? 
What is a commodity? I would add what is currency because these 
are all important definitions to whether or not certain 
agencies are within their jurisdiction.
    And to have you say two things, really scared me. One, that 
you haven't made any offerings because you don't have the 
certainty you need to know whether or not you can start to work 
in this space and second, to say that 20 percent of your 
workforce is working on compliance, that is nothing to be 
celebrating from this side of the table in my mind.
    So I would just ask you what about clarity in this area and 
what about the balance that I am concerned with?
    Mr. Lempres. Yes, thank you for raising it. It is obviously 
a very, very important issue. I can tell you that from our 
standpoint what we really need more than any particular 
approach is to know what that approach is going to be from the 
Government so we can plan and we can move.
    This system innovates very quickly and just knowing where 
the lanes are is extremely helpful for us.
    Mr. Emmer. If I can interrupt real quick?
    Mr. Lempres. Yes.
    Mr. Emmer. I am sorry because I am thinking of a conference 
that I was at last week, one of our very important and 
respected secretaries made a statement about everybody needs to 
    There is no clarity around the law so all of a sudden 
people who are looking at being in this space or getting into 
this space, I heard from more people there after that comment 
that we can't start our business in the United States. We are 
going to have to go somewhere else to start it. Does that 
concern you?
    Mr. Lempres. It does, although I will say that the entire 
world is struggling with these same issues. And with regard to 
the percentage of our team that is focused on compliance, the 
biggest piece of that is focused on Bank Secrecy Act and Know 
Your Customer obligations, these people are concerned about 
money laundering and counterterrorism and things like that.
    And that is an important element no matter which country we 
are operating in, and certainly in any developed country we 
will have those expectations.
    Mr. Emmer. And we should work with all of you to understand 
better those things that would work. I would just leave you 
with this. Right now this system gives advantage to the 
individual and not to the Government, and I am worried about 
giving advantage to the Government and taking away liberty from 
the individual. So hopefully we will be able to meet that 
balance as we go forward.
    Thank you, Mr. Chair.
    Chairman Huizenga. The gentleman's time has expired.
    With that, the Chair recognizes the gentleman from 
Illinois, Mr. Foster, for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman. And before I begin my 
testimony I would like to ask unanimous consent to enter into 
the record a letter on behalf of Congresswoman Sinema from an 
Arizona-based blockchain company in support of this committee's 
investigation into this area.
    Chairman Huizenga. Without objection.
    Mr. Foster. Thank you. Distributive ledger technology has 
tremendous promise and the value of a non-falsifiable ledger 
will have broad applicability to financial and non-financial 
transactions. It could reduce transaction cost, increase 
transparency, and provide for instant and final settlement in 
the areas ranging from cash transactions to real property 
records to securities.
    It also provides a platform for more speculative 
transactions, such as Bitcoin, that are backed by nothing more 
than perhaps their scarcity and the belief that there will, at 
some point, be a greater fool to take them off their hands at 
some unknown price in the future.
    But nonetheless, much of our daily lives will soon involve 
something like blockchain, so I think it is past time that 
Governments around the world have a look at these digital 
tokens and figure out where and how they should be used.
    And it strikes me there are three fundamental questions 
that I would like your reaction to that we have to face. The 
first is will there be a mechanism to bust trades or not? In 
the case of the Flash Crash, for example, the CFTC had very 
clear rules in place under which case market gyrations would 
result in trades being broken. There is no such mechanism, for 
example, in Bitcoin where if someone steals your Bitcoin codes 
they have it and you cannot get it back.
    Similar questions arise if a hacker absconds with the 
contents of your vault. Is there a higher authority that you 
can go to to break that trade? So that is the fundamental 
design question that I think you face and that we face as 
    Second, is there a need for something equivalent to a 
consolidated audit trail? In the securities space we have 
learned by bitter experience of the need, if we are going to 
detect and prevent market manipulation, we need to have an 
electronic record of the timing and the beneficial owner behind 
every transaction. That could be designed into digital entities 
like this or it could not be.
    And third, related, is the authentication of participants. 
Will there be a mechanism if necessary an order of the 
regulator to unveil the identity of counterparties and issuers? 
That is something that could be present or could not be in any 
of these.
    And so I was wondering if you have a reaction to you think 
we should address those three issues: Busting trade, 
consolidated audit trail, and authentication of participants. I 
am just happy to go down the line here.
    Mr. Lempres. Sure, I am happy to start with that. Busting 
trades is tough--there are technological challenges to that. 
Once these trades occur or a transaction occurs, it has 
occurred. There is no opportunity for settlement 24 hours later 
or something else where you can look at it and pull it back. So 
that is a challenge.
    Mr. Foster. Yes, but there are technological means of doing 
that where every transaction would be conditional on the fact 
that some trusted set of entities haven't publicized a code 
that invalidates the trade.
    Mr. Lempres. Yes, it--
    Mr. Foster. There are technologic ways of doing that but 
everyone has to understand that it is not like cash. If you 
steal cash it is yours, all right? And, with the exception of 
serial numbers and so on, you pretty much own that cash. But it 
could be designed differently and--all right. Then--
    Mr. Lempres. No, it absolutely could be. It absolutely 
could be.
    Mr. Foster. Right, so the consolidated audit trail?
    Mr. Lempres. Yes, unless those two items are put together 
the authentication of participants and any consolidated audit 
trail issue--certainly if you are trading on our platform we 
have information on it.
    We have your bank account information. Typically we have a 
lot of Know Your Customer information so we know the 
individuals. We know where they are. We verify their identity. 
We know the source of funds. We know quite a lot about them. 
And there is an immutable record once it is created.
    So in many ways we have--while it is not a consolidated 
audit trail in exactly the terms you are looking at, we have 
much of that information gathered on our platform that we are 
able to reconstitute it if it becomes necessary.
    Mr. Foster. OK. All right.
    Dr. Brummer, you want to take a swing at those?
    Dr. Brummer. Other than saying that I am sympathetic with 
your objectives, I would have to defer to Mr. Lempres as to how 
the internal operations work on it.
    Mr. Foster. OK.
    Mr. Rosenblum?
    Mr. Rosenblum. Sir, I think to take all of your questions 
we have to step back and look at a couple things. There are a 
number of different currencies and there are a number of 
different items being traded here. And there are a number of 
different places in which they get traded.
    So if you are talking about Bitcoin or other things that we 
will view as pure currencies, which is probably where this 
question starts from, I think there are one set of answers to 
those questions. I promise to get to those.
    But the second thing, though, is when we are talking about 
the new tokens and things that are being developed for 
particular platforms, those are very different. And there are 
at least two places where those can be traded, one is on the 
platform itself, second is on exchanges, most likely exchanges 
registered with the SEC.
    When we talk about exchanges registered with the SEC, I 
think your notion of having all three of those things exist 
will absolutely happen. I think the question of if we move--and 
I think with well-regulated, well-thought out platforms, that 
type of, at least to a large extent, all three things that you 
are talking about, identifying customers, having a consolidated 
audit trail, and being able to bust trades can happen on those 
    I think when we move to something like Bitcoin, there I 
think you have a much more difficult problem with this because 
that genie is already way out of the bottle. And the ability to 
trade Bitcoin throughout the world is very difficult to put in 
at least to Know Your Customer rule or an identification rule.
    For example, you have a wonderful consolidated audit trail. 
You can follow Bitcoin throughout the trail. You just don't 
know who it was who held it. So that one, I think, is the one 
that is going to be much more challenging for this 
    Chairman Huizenga. The gentleman's time has expired.
    With that, the gentleman from Ohio, Mr. Davidson, is 
recognized for 5 minutes.
    Mr. Davidson. Thank you, Chairman, and I thank you all for 
your expertise on the topic in the rapid expiration of 5 
minutes has been duly noted. So I will try to crank through 
    I really appreciate the dialog that has been had about the 
differentiation between commodities and securities, and Mr. Van 
Valkenburgh, I wanted to spend a little bit of energy on that 
because as these securities are offered, in a way, I think you 
did a good job of highlighting what might look like a commodity 
with a test.
    But many times when people go to market, these aren't 
shares in a company. If you think of them as an equity they are 
non-voting shares and some of them aren't even committed to a 
dividend. And those that are committed to have some return in 
their structure, how is it that I make money for it, in some 
ways it looks almost like a bond.
    So could you say, look, if we were filing for securities, 
which people haven't done yet, part A plus part D, part S, what 
does that look like to treat it as a security in common frame 
of reference for folks?
    Mr. Van Valkenburgh. Thank you, Congressman. I would first 
start out by saying that there are several developers who have 
sold their tokens through Reg D filings and they are not 
selling the tokens in that case. They are selling a promise, an 
investment contract in the true meaning and spirit of the Howey 
test wherein they are going to make efforts, people will rely 
on those efforts and the outcome will be something profitable.
    But the outcome in many of these cases is a brand new 
decentralized computing system that has baked into it tokens 
which can achieve some functionality.
    Once that system is built and the investors who bought in, 
say, a Reg D offering, is given the tokens, those tokens to me, 
assuming the network is functioning, that people are now 
relying on the blockchain instead of the issuer. They are 
relying on a blockchain the issuer created for proof of 
ownership for the functionality that that blockchain creates.
    At that point, it looks more like a commodity. At that 
point, maybe you can do something useful with the token like 
use it in an engine for cloud storage or use it in an engine 
for computation or hold it as a valuable and scarce commodity 
like gold or salt or things like that.
    Mr. Davidson. Thank you. And in that sense shares have many 
of the same features, and, of course, they are treated as 
    Mr. Rosenblum, I want to spend a little bit of time talking 
about a lot of the companies that raise this capital are early-
stage companies. And historically one of the paths to capital 
for early-stage venture.
    Venture is often considered smart money. You get the 
benefit of lots of experience helping small, early-stage 
companies navigate to scale up. ICOs don't always have those 
features. Last year it was estimated that startups raised about 
$4 billion in ICOs. Can you talk a little bit about the 
concerns with respect to venture versus ICOs?
    Mr. Rosenblum. Thank you, Congressman. Actually let me say 
one quick thing. I am the only one on the panel who has not 
been asked about security versus commodity, so if somebody at 
some point wants to ask me, you are going to get a very 
different answer from me on that question than the other 
    To answer your question, sir, one of the things we have 
seen in the ICO market to date has been a large number of 
people, a large number of companies raising money in ways that 
any securities lawyer would have told you, and truthfully did 
tell you, that you shouldn't do.
    So for example, Dr. Brummer's suggestions about how to 
improve a white paper to me make--I understand the notion, but 
no rational securities lawyer will advise their client to sell 
off a white paper. We always sell off of a private placement 
    Mr. Davidson. Right.
    Mr. Rosenblum. --Or a disclosure document. We always have 
risk factors. We always take all the steps you need to for an 
ICO in exactly the same way that we do in a private placement 
for any other security.
    And so one of the things we have seen, and then I will--and 
I know time is short, sir, but one of the things we have seen 
are market practices that have been detrimental to the long-
term development of the ICO market.
    Mr. Davidson. Yes, thank you for that. And I think a very 
good distinction, and I like that you hooked back in this 
notion, of a white paper and how soft that is versus a private 
placement memorandum. And I guess to your point, if I could 
hear your perspective on commodities versus securities, I would 
appreciate that as we close.
    Mr. Rosenblum. Oh, thank you. Thank you so much for the 
invitation. So I think that the notion of trying to decide what 
is a security and what isn't a security is something that would 
lead the market to distraction.
    To take the notion that once something becomes functional, 
once a platform becomes functional you no longer have a 
security that has to be wrong. You can be still relying very 
extensively on the efforts of the promoters. Trying to draw a 
line on when it is that you are no longer significantly relying 
on the efforts of promoters is so very difficult and so 
convoluted and so open to second guessing.
    My suggestion is don't even bother. Come up with a simple, 
easy system to use eventually that is going to apply to all of 
these things regardless of whether they are a security or not.
    Mr. Davidson. Thank you.
    And thank you, Chairman, for the additional seconds, and I 
    Chairman Huizenga. The gentleman's time has expired.
    With that, the gentlelady from Missouri is recognized, Mrs. 
Wagner, for 5 minutes.
    Mrs. Wagner. I thank the Chairman very much.
    Mr. Lempres, in your testimony you stated, and I quote, 
``we need to be sure that we are not killing good innovation 
brought about by new technology and good actors. For example, 
the State of New York requires a BitLicense, which has been 
unpopular causing companies to end their business relationships 
in the State.''
    Mr. Lempres, let me start off by asking you two questions. 
Since Coinbase is one of four companies who have received a 
BitLicense, do you believe New York's model was appropriate for 
all industry participants? And second, what lessons can we 
learn from New York's attempt to regulate the virtual currency 
    Mr. Lempres. Yes. Thank you for asking, and we are one of 
four companies that has received it. I think an obvious lesson 
is New York made a very ambitious effort by the State to 
regulate in this space.
    The fact that they have only issued four licenses answers 
the question to a certain extent. They have chilled activity in 
the State of New York.
    Having said that, when you are at the scale that we are at 
now and the number of individuals and institutions that we are 
dealing with now, we do benefit from the comprehensive 
regulatory scheme the State of New York has put in so that 
people do trust more.
    We are doing the kinds of things they want to see when we 
have people who are used to dealing with financial 
institutions, and the State of New York is in effect treating, 
through its BitLicense, us and other companies the way they 
treat financial institutions. I think that sends a message to 
the market.
    So for a company of our size and again, there are four that 
have this license, we have found benefits in dealing with the 
State of New York on this. I would note that there are hundreds 
or thousands of companies in our space and obviously only four 
of them are operating in New York under that authority.
    Mrs. Wagner. What are other State laws that regulate 
    Mr. Lempres. So we have 40 licenses in 38 States so they 
are primarily money transmission licenses that we deal with but 
they lead to full exams. We have, I believe had 28 exams to 
current various States coming into our offices.
    Mrs. Wagner. OK. Switching topics somewhat, I wanted to 
talk about compliance a little bit. As a registered MSB, 
Coinbase is required to submit suspicious activity reports, or 
SARs, to FinCEN. Mr. Lempres, I understand that Coinbase 
includes blockchain analytics when filing their SARs. Can you 
explain to the committee how including this information allows 
FinCEN to get a more complete picture of what is going on?
    Mr. Lempres. Yes, and thank you. So you are correct in all 
of your parts there. Yes, we do file SARs with FinCEN and that 
we do include blockchain analytic information where it is 
helpful in that SAR.
    And the reason we do that is simply to do everything we can 
to put into context the information--we have access to 
information, that many Federal agencies don't see on a day-to-
day basis. We see it all the time. We try to tie it together to 
present as accurate and complete a picture we can so that if 
further investigation is warranted they at least have the 
broader context in which it is operated.
    Mrs. Wagner. And to follow up, can you talk about how 
Coinbase coordinates with law enforcement and how your Know 
Your Customer program was developed?
    Mr. Lempres. Sure. So we are quite proud of our involvement 
with law enforcement. We have a group, our global intelligence 
unit, it's focus is exclusively on law enforcement coordination 
and education. We train, I believe, more law enforcement 
agencies globally than anyone.
    We have trained hundreds of State and local agencies. And 
when I was talking about training, it is essentially how the 
blockchain works, how cryptocurrencies work.
    Mrs. Wagner. Right.
    Mr. Lempres. What information is there and how a case can 
be put together if they need to put a case together.
    Mrs. Wagner. Mr. Van Valkenburgh, in your testimony you 
mentioned that there is friction and mismatch between new 
technology and old regulatory structures when it comes to 
State-by-State money transmission regulation. Can you explain, 
sir, how the current State regulatory approach poses issues 
with regard to cryptocurrency exchanges?
    Mr. Van Valkenburgh. Yes, thank you. The first thing I 
would say is these are naturally global technologies. They work 
on the Internet so when people use them they necessarily cross 
borders. And a company like, say, Coinbase, will have customers 
not only in every State but probably across the world. And that 
means that compliance, when it is done at a more local level, 
is very burdensome and often redundant.
    The 40th background check that your company gets will 
probably not make you more likely to be secure or to have a 
good reputation. It is just extra.
    Now, the other friction or mismatch between State money 
transmission licensing and these technologies, especially at 
the exchange level, is that money transmission licensing 
relatively exclusively focuses on this idea of transmission 
from A to B, not on the idea of custody as clearly defined but 
on the idea of transmission.
    And there are all sorts of people in the world who are 
developing these technologies who facilitate transmission 
because they write highly innovative software that help power 
these new blockchain technologies. They are critical to this 
innovation. And they don't take custody of consumer funds, so 
they don't actually put customers in risk.
    But depending on how a various State money transmission 
licensing statute is drafted, you could interpret it to say 
that that software writing activity is included as money 
transmission. And the penalties for being an unlicensed money 
transmitter are very grave.
    So if we could cleanup that statutory language State-by-
State to make it clear, folks that hold people's Bitcoin, like 
my colleagues' company Coinbase, are licensed.
    But people who don't actually hold it are not subject to a 
licensing requirement. That would be a very positive signal 
from the U.S. that we are willing to protect innovation where 
it doesn't endanger consumers.
    Mrs. Wagner. I thank you all for your testimony. My time is 
way expired. Thank you for your indulgence--
    Chairman Huizenga. We have been somewhat generous today on 
that, knowing how do you unravel this in 5 minutes is very 
    And still while we are in this first round, welcome back 
Mr. Sherman, who is recognized for 5 minutes.
    Mr. Sherman. Thank you.
    The currency is both a store, a value, one you hope 
appreciates, and a medium of exchange. So let us focus on the 
medium of exchange. Is there any reason why I would need a 
cryptocurrency to pay for my groceries or anything else? Why 
wouldn't that be adequately served by using dollars?
    Yes, Mr. Van--yes.
    Mr. Van Valkenburgh. Thank you, Congressman. No, not 
yourself I believe, sir, because you and I are--
    Mr. Sherman. You are assuming I am not a terrorist or a 
criminal and I thank you for that.
    Mr. Van Valkenburgh. No, I am assuming you are an American 
citizen, which I think is a pretty safe assumption.
    Mr. Sherman. Oh, that one is safe. The other two are 
questionable. Go ahead.
    Mr. Van Valkenburgh. You and I have the benefit of a well-
functioning and extremely important financial infrastructure 
that surrounds us every day of credit cards, of bank accounts 
and most Americans do find it not too difficult to become 
banked. We have an unbanked problem in this country but it is 
not nearly as profound as other parts of the world.
    In other parts of the world--
    Mr. Sherman. Now, is there any part of the world where the 
unbanked couldn't just as easily have access to transactions in 
real currencies rather than cryptocurrencies?
    Mr. Van Valkenburgh. So there are parts of the world where 
real currencies in those countries are being basically debased 
by their Governments or hyperinflated or they just don't have 
actual purchasing power because of--
    Mr. Sherman. Right. So you could use dollars, euros, Swiss 
francs. Why are those not the adequate substitute?
    Mr. Van Valkenburgh. If you can find access to cash in your 
region of the world, U.S. dollars, that might be a very good 
means of exchange, but those will trade at extreme premiums. My 
only point is that cryptocurrencies are accessible. They are 
accessible financial tools only on the basic precondition that 
someone has a smartphone and an Internet connection.
    And I think there are regions of the world where people 
will sooner have smartphones and Internet connections than they 
will have access to a valuable and secure financial services 
from companies.
    Mr. Sherman. I wonder if someone else can comment on that? 
I don't think on the tallest mountain of Tibet there is 
somebody with a $100 bill that they are holding onto. And on 
every cellphone there is a way to use dollars or euros, so does 
someone else have a comment?
    Mr. Rosenblum. Mr. Sherman, thank you for the questions. I 
want to divide your question into two different parts. One part 
relates to things like Bitcoin and other currencies, which is 
really what you are discussing.
    Second part is going to relate to tokens and similar types 
of things that have--instruments that have specific purposes on 
specific platforms that people can earn and generate in ways 
that you could not do with cash.
    Mr. Sherman. I have limited time--focus on what can't you 
do with cash?
    Mr. Rosenblum. In a platform, for example, where we have a 
buyer of property, sellers, and then we have third parties who 
are performing important services to the platform to help the 
platform run, to help validate services, to help do other 
functions that are--
    Mr. Sherman. And why can't these platforms use dollars?
    Mr. Rosenblum. Because there is nobody who is going to pay 
them. What happens on these platforms is that the platform 
    Mr. Sherman. Wait a minute. I have a bank. I pay them one 
way or another.
    Mr. Rosenblum. No, no, see, you have to find a source. You 
have to find somebody who would have or who would be in the 
business of paying them and that costs money. So what you see 
in these platforms, what you see--
    Mr. Sherman. Sir, I have lived my whole life. I am as old 
as almost anybody in the room.
    Mr. Rosenblum. Oh, sir, that is very kind of you to say, 
    Mr. Sherman. And various intermediaries have handled my 
financial transactions my entire life and none of them have 
gone hungry.
    Mr. Rosenblum. We are talking about a very different 
business model. And that is one of the things that is so 
important about this and what is so important about this--
    Mr. Sherman. --We know that this is a good method for 
terrorists, criminals, and tax evaders. So the question is, is 
there some great social purpose that cannot be met in any other 
way? And I will want to hear from a different witness, and I 
don't see one volunteering.
    Dr. Brummer. Honestly I think it is an important question 
because you are getting ultimately to this question as to 
whether or not many of these cryptocurrencies, and I think the 
vast majority of the cryptocurrencies tied to ICOs are really 
just means by which you are raising capital as opposed to 
    I will say--
    Mr. Sherman. Raising capital but unregulated--
    Dr. Brummer. Oh, absolutely.
    Mr. Sherman. --Doing an IPO but calling it an ICO--
    Dr. Brummer. One of the key responses I was trying to mark 
for Mr. Rosenblum when discussing the adequate disclosures or 
the kinds of disclosures that one would like to see in a white 
paper is precisely in order to beef up those white papers so 
that they become more compliant with the expectations of our 
securities law, which I think is an expectation that all 
securities lawyers would enjoy.
    But I am very sympathetic to that.
    Mr. Sherman. But if I buy an ICO and the company sells 
great pizza and eventually makes billions, I don't get any of 
that. I am not a stockholder?
    Mr. Rosenblum. But sir, the important thing on those tokens 
is the company that creates the platform may not have any 
financial success on the platform. And the fact that the 
platform becomes very successful may not redound to the benefit 
of the entity that created the platform.
    Mr. Sherman. OK. Perhaps we will have another hearing after 
some major terrorist event financed by cryptocurrencies, and I 
yield back.
    Chairman Huizenga. The gentleman yields back.
    With that, the gentleman from Connecticut, Mr. Himes, is 
recognized for 5 minutes. Currently pass, OK.
    We have some people potentially in transit, but if it is OK 
with my colleagues we would like to go on to a second round, 
which basically means I get to ask another question finally 
after having a number of them.
    And Mr. Rosenblum, you asked for it. So differences between 
a commodity and a security?
    Mr. Rosenblum. So in this case, as I said before, it is 
very difficult to know where one begins and one ends. The 
notion of saying, something has usage if we go back to the 
citrus groves that were at issue in the Howey test, there is no 
doubt that the citrus groves had usage. They really produced 
citrus fruit that people really sold. Didn't mean that the 
participation interest in those were anything other than 
    The problem that we face is that I can draw a line for you 
that says when the promoter's efforts on the platform become 
less important than the commercial usage of the platform in 
driving the token value, probably it is no longer security 
under Howey.
    What I cannot tell you is a good test or a good set of 
factors to look at that tell you with any great certainty when 
you get to that point. So the thing that I keep suggesting to 
people on this is I think that in the long run we shouldn't 
worry about that issue.
    We shouldn't worry about the distinction between this is a 
commodity, this is a security, and how they travel back and 
forth between each other. But instead have a simple system, 
move to an environment where you have a simple system that 
works for both and we don't have to have lawyers like me argue 
with other lawyers and argue with the courts and argue with the 
SEC over which side of the line it is.
    Dr. Brummer. So can I just jump in for one quick 
observation in response to something that you said, which I 
think is really quite useful? When you think about the citrus 
groves in the Howey case, this famous Howey case, you had 
oranges. The oranges themselves were commodities.
    It was the combination of the oranges of a service contract 
basically with an opportunity to invest in them. It is the 
combination of it all where the whole is greater than the sum 
of its parts. And then you end up in the world of a security.
    However, I would say that there is a difference in terms of 
how commodities are regulated under the CEA. And how securities 
are regulated. And securities regulators, for example, tend to 
put a little bit more of an emphasis on disclosure, the 
relationship that the SEC has with infrastructure providers and 
other market participants. There is a different level of 
reliance in the commodities world versus the securities world.
    And these are things that I think that you, as a committee, 
really ought to take into consideration when you are drafting 
any potential legislative response.
    And I would like to also emphasize that when we think about 
a commodity, one of the commonalities between the commodities 
world and securities world is an awareness that digital things 
tend to be more abstract and therefore they tend to be a little 
bit harder to understand and as a result there is a bit more 
attention that is focused and placed on those products.
    Gold is the quintessential commodity because it is finite. 
People tend to like shiny objects. And it is universally 
identified as something that has value. Here we are debating a 
lot of that, and as a result our regulatory authorities and you 
as a--
    Chairman Huizenga. And so based on those regulatory 
authorities, and we saw my colleague, Mr. Emmer, talk a little 
bit about this, and I see the natural tension. You have people 
saying there is no way I want any Governmental regulation on 
this. In fact, we came up with it. Get out of it. This is a 
fire free zone and we like it that way.
    Government bureaucracies and agencies tend not to view the 
world through those lenses and I think there is a certain 
Governmental responsibility to protect those investors versus a 
known investor or a unique investor that is sophisticated in 
    And I have a minute left here, and I am going to be tight 
on this 5 minutes here, but I am curious, and anybody can 
answer this, will a Governmental central bank in any system 
recognize and utilize a cryptocurrency? Because I think until 
that point, this is going to be a bit of an outlier.
    And whether it would be some small country or some others, 
it seems to me the only way that there is going to be an 
ultimate legitimization of cryptocurrencies is whether a 
central bank somehow recognizes it. Anybody?
    Mr. Rosenblum. Mr. Chairman, I think several countries in 
Europe, for example, and in Latin America have already thought 
about and are already considering digitizing their currency. So 
I think that that is something that may very well happen.
    I wonder though whether to at least--
    Chairman Huizenga. But that is a little bit different. That 
is a Governmental-created currency versus a non-Governmental 
currency at this point, right?
    Mr. Rosenblum. That is right, but I wonder what the 
difference is. Once we have moved away from the Bretton Woods 
Treaty, and once we have currencies floating freely around with 
each other. I think in one sense what we are worried about is 
that Bitcoin isn't backed by a state actor and that is about 
    Chairman Huizenga. OK.
    With that, the gentleman from Georgia is recognized for 5 
    Mr. Scott. Thank you very much, Mr. Chairman. And, again, I 
am so excited about this new cutting edge, what I call the new 
frontier of our financial service industry and it is an 
exciting time for us.
    But let me give you all this scenario. We have millions of 
new investors who are literally pouring their savings into 
virtual currencies here, and it is a wonderful thing. As I said 
before, it is burgeoning up. It is billions of dollars in 
capital being raised.
    But then these facilities in this virtual currency are 
facilities that store and they transfer these digital assets 
for investors which are known as digital wallets. But here is 
the problem. These digital wallets have become targets for 
    And hackers are using social media, phone calls, and ads on 
search engines to fool investors into providing them with 
sensitive personal information that they can use to gain access 
to accounts at digital wallet providers and steal literally 
thousands of dollars' worth of virtual currencies. Hackers have 
also targeted the digital wallets themselves, exploiting the 
vulnerabilities in their cybersecurity systems.
    This was brought to my attention by SEC Chairman Clayton. 
He has pointed out that digital wallets storing or transacting 
digital assets that are securities, can trigger other 
registration requirements under the Federal security laws, 
including broker-dealer, transfer agents, or clearing agency 
    So panel, what I want to ask you is what are the benefits 
to investors of digital wallets registering with the SEC? Would 
that help to defer? These are the kinds of technical and 
complex questions that present us as Members of Congress 
because it all falls on our shoulders. And most certainly we 
want to be responsive.
    And as I said before, Co-chairman of the FinTech Caucus I 
am very proud of this industry. But I also know, for example, 
the OCC may come there. They are flirting from one position to 
the other of doing a special order charter for FinTechs. And 
then you have all these regulators boxing around how to 
identify them.
    But all this comes to our lap, and if they are registered 
with the SEC should these digital wallets be subject to 
enhanced cybersecurity protocols such as Chairman Clayton said, 
as the SEC's regulatory systems compliance and integrity of Reg 
SCI? We are dealing here with an opportunity to get it right 
before we get it wrong.
    So tell me, Mr. Van Valkenburgh?
    Mr. Van Valkenburgh. Thank you, Congressman. I think the 
testimony of both Chairman Clayton and Chairman Giancarlo 
before the Senate Banking Committee is extremely important to 
take a look at, to think about how those two regulators are 
construing the space.
    Chairman Clayton, as you rightly said, talked about tokens 
that are securities either because the token does represent a 
legal agreement, it is a company saying these are shares of our 
stock, or because the token is a speculative promise of future 
efforts, fits the Howey test.
    But Chairman Clayton also talked about what he called pure 
cryptocurrencies. He used the term on several occasions. And 
the Chairman suggested that those are outside of SEC 
jurisdiction and if you look at one of his responses to the 
questions he said, ``Do not misconstrue me saying that is 
outside of our jurisdiction as asking for more jurisdiction.''
    And I think that is probably because the colleague sitting 
to his left was Chairman Giancarlo of the CFTC, an organization 
that has expertise in policing markets for scarce commodities, 
which pure cryptocurrencies, I would argue, very much are. So I 
think we want to look to the institutional competencies of 
these two different agencies to protect investors.
    And that means the CFTC will continue to use its existing 
authority to police spot markets for fraud and manipulation if 
the spot market is trading commodities and the SEC will ensure 
that only tokens that are securities are traded only on ATSes 
or national securities exchanges, which will have to go through 
all of those cybersecurity requirements.
    Now, where there might be a gap, if there is any gap, is 
the fact that the spot markets for cryptocurrencies are policed 
by the CFTC ex post, not supervised by the CFTC ex ante, for 
things like transparency, cybersecurity standards, and the 
like. Instead, they are supervised by the States in a patchwork 
approach that includes the BitLicense and others.
    It might be time to rationalize and Federalize that 
supervision of cryptocurrency markets.
    Mr. Scott. And so if you saw those two agents--
    Chairman Huizenga. I am sorry. The gentleman's time has 
    Mr. Scott. All right. Thank you, sir.
    Chairman Huizenga. With that, the gentleman from North 
Carolina, Mr. Budd, is recognized for 5 minutes.
    Mr. Budd. Thank you, Mr. Chairman. And again, thanks to 
each of you for being here today.
    Peter, I want to publicly thank you for the private 
briefing that you and Jerry gave several weeks back and just 
say how helpful that was and just to encourage any other 
members, staff on either side of the aisle just to reach out. 
You guys have been very helpful in bringing us up to speed on 
this, so thank you again.
    Mr. Van Valkenburgh. Thank you.
    Mr. Budd. So I want to make a statement and then ask a few 
questions. One, regulation in this space is something that the 
U.S. we have to get right because poor or rushed policy with 
respect to cryptocurrency and tokens, in my opinion, it really 
threatens America's leadership in finance and in technology.
    So we have to be careful to avoid missteps. This technology 
has potential to become something great, so I just think that 
we should move with caution here.
    And on that note, I am curious about an idea that I have 
heard and being floated around as a potential regulation scheme 
for cryptocurrencies. So this idea would divide 
cryptocurrencies into securities and non-securities with 
security coins being regulated as securities and non-security 
coins being regulated as commodities.
    So the obvious difference between the two being the 
security coins would offer dividends or equity or anything that 
did not, again, be on the other side, would be on the commodity 
side. So I am curious, Peter, to get your thoughts on this idea 
    And then Dr. Brummer, if you have any thoughts if you could 
answer that as well?
    Mr. Van Valkenburgh. Thank you, Congressman. The first 
thing I would point out is that this is a global technology, 
and U.S. laws are not a good fit for both the innovators and 
the investors as far as protecting them but also enabling 
markets, these technologies will move to other jurisdictions.
    The Congressman is, I think, correct that a sensible way of 
dividing these markets is between things that are more 
commodity-like and more security-like. And in the U.S. the 
flexible test for a security, the Howey test, is the tool for 
doing that.
    But it is not the tool globally. In Europe, for example 
there is more of a black letter law approach than a flexible 
test. Certain things have been identified in various European 
jurisdictions as securities and they are more of what you 
suggested, things that clearly offer a dividend or capital 
return on investment.
    Finding a more bright line test may be useful, although the 
SEC's flexibility with the Howey test can be very helpful in 
going after schemes that pretend to not be securities by not 
offering those formal things.
    So finding a way forward is not easy, but probably worth 
considering because at the moment you see many more of these 
truly innovative capital formation opportunities moving over to 
Europe. You see a lot in Switzerland. You see a lot in Germany. 
And these are not countries with lax securities regulations. 
These are just countries with a more certain legal test.
    So I think guidance from the SEC as to how they will 
interpret the Howey test with respect to token sales, they have 
already had a lot of very deliberate statements that have been 
very helpful, but further guidance might be helpful, especially 
with respect to exactly how you draw the line. And it might 
look more like what Europe is doing these days.
    Dr. Brummer. So I guess my first response is that Europe's 
approach on this is very much uncertain, number one.
    Number two, they don't have a definition in place firmly 
for virtual currencies under MiFID and other European Union 
regulations and rules. And they are grappling with these same 
issues just as we are today. And there is an enormous amount of 
uncertainty as to how that is going to just play out.
    I think when it comes to the commodity securities question, 
I agree with Peter. Maybe there is a little bit more of a 
difference of tone. Institutional competence is extremely 
important when thinking about who should be regulating 
different financial products.
    My testimony today emphasized the question of disclosure. 
And I think that even when it comes--I think that Bitcoin is 
not the same as gold and I think that people intuitively 
understand it a lot less.
    And so this creates very important questions as to what 
kinds of disclosures should be related to pure cryptocurrencies 
that may legally, under current law, resemble a commodity or be 
classified as as a commodity as opposed to a security because 
the disclosure process available under the CEA is more or less 
of a buyer beware approach versus a much more fulsome approach 
adopted under the SEC.
    And so a decision has to be made as to not just the 
competence but even under existing rules no matter which, 
excuse the pun, side of the coin you may fall, there will be 
subsequent rulemaking required in order to adopt and to adapt 
your existing regulatory processes to a virtual currency. And I 
think that it is important that people recognize this, that 
there is going to be work that will have to be done, both on 
the SECs and as well as under the CFTCs in order get it right.
    Mr. Budd. Thank you both.
    I yield back.
    Chairman Huizenga. The gentleman's time has expired.
    The gentleman from Connecticut is recognized for 5 minutes.
    Mr. Himes. Thank you, Mr. Chairman. I will yield my time to 
Mr. Scott.
    Mr. Scott. Thank you very much, Mr. Himes. I appreciate 
    Mr. Van Valkenburgh, you hit it on the head as to what I 
think we have an obligation both to this burgeoning industry 
here, as well as to the safety of the American people. All this 
technology that we have being applied in very sensitive areas 
makes us become almost a servant of the machine technology that 
was created to serve us.
    And we have to get this right in terms of what I think is a 
delicate balance of the right regulation that really helps to 
solve the problem. We have hackers out there that are at work 
and damaging great careers and jobs and just the lives of the 
American people. And they look to us here in Congress to try to 
solve that.
    And so when I brought that issue you brought up how the 
CFTC and the SEC would work together in working with this, 
which presents another problem that we have. And let me ask you 
in that situation the great need for harmonization because that 
is the problem we have.
    When we have these regulators involved and you have several 
regulatory agencies, it puts your industry in somewhat of an 
awkward position trying to figure out and try to make sure that 
they are both coming at it the same way. So would you recommend 
that whatever we do, knowing these different agencies, that 
Congress put in whatever we do a rule for harmonization?
    Mr. Van Valkenburgh. Yes. I do think harmonization is 
critical. Chairman Giancarlo, when he talks about policing 
authority over these spot markets for commodities, emphasizes 
that they don't have any ex-ante authority. They don't have the 
ability to supervise beforehand. They are not the regulator on 
    And as I was briefly saying earlier, the regulator on point 
is largely the States, whether it is through the BitLicense or 
through money transmission licensing. And so it is not just 
anarchic as between Federal agencies potentially. It is 
anarchic as between Federal agencies and various State 
    I think State-by-State money transmission licensing is both 
the biggest impediment to the technology because of the 
profound and redundant and nonproductive costs that it imposes 
on the industry and on the ecosystem. And it also is not an 
adequate way to protect consumers or investors.
    I think we need to start a conversation in Congress about 
Federal pre-emption of State money transmission licensing law 
that would also include sensible investor protections for those 
who become licensed by a Federal authority.
    And Chairman Giancarlo, in his testimony before the--I 
believe it was before the Ag Committee not Banking Committee in 
the Senate said what that will look like will be data 
reporting, capital requirements, cybersecurity standards, 
measures to prevent fraud and price manipulation and anti-money 
laundering and Know Your Customer protections.
    That is a sensible package to require from intermediaries 
in our cryptocurrency space, and it is the low-hanging fruit 
from a harmonization standpoint of what Congress can do soon.
    Mr. Scott. Thank you very much, Chairman.
    Chairman Huizenga. The gentleman yields back the time.
    So I would like to thank our witnesses for today. I thought 
this was illuminating in so many various areas and completely 
befuddling in others, which--welcome to Congress I guess. But 
it was very helpful and thank you for this.
    I believe that this is probably hello not good-bye. We are 
going to be continuing to have this conversation.
    I do have--without objection, I would like to submit the 
following statement for the record, a statement from Liquid M 
Capital, Inc. without objection, so moved.
    Without objection, all members will have 5 legislative days 
within which to submit additional written questions for the 
witnesses to the Chair, which I will then forward on to you 
all. And I would just ask our witnesses to please respond as 
promptly as possible.
    And without objection, all members will have 5 legislative 
days within which to submit extraneous materials for the Chair 
for inclusion into the record as well.
    So again, thank you very much for your time and your 
attention to this and your insights. And this hearing is 
    [Whereupon, at 12:07 p.m., the subcommittee was adjourned.]

                            A P P E N D I X

                             March 14, 2018