The hearing was run by Benjamin Lawsky, superintendent of the NYDFS. He opened the hearing on a positive note, saying that Bitcoin “would receive a regulatory structure in 2014.” I consider that great news. Overall, he seemed cheerful and positive about Bitcoin. He frequently led the panel of experts into questions while betraying his own preferences, which seem to be relatively strongly pro-Bitcoin.
Here’s what I consider the most pertinent quote from his opening:
“Let me step back then and say that our agency approaches the issue of virtual currencies without any prejudgements.
A lot of people initially react to a very outside-the-box idea like virtual currencies with immediate skepticism. I think we should resist being completely overtaken by that urge.
“It’s hard to say precisely what the future holds for virtual currency and its associated technology. Currently, there is not widespread adoption of virtual currencies among the general public. And some doubt whether there will ever be.
“But the same has been said about many other technologies that have since become everyday features of our lives.
“It’s generally a difficult proposition for financial regulators to forecast technological trends. It’s not something we do particularly well.
“That said, serious people – in the technological and investment community – are taking virtual currencies seriously. They are putting significant amounts of time, attention, and capital behind them. We, as a regulator, cannot turn a blind eye to something like that. We don’t really have a choice.
Very pro-virtual currency, you see. He’s interested in not making pre-judgments, he makes fun of regulators prior success with other technologies, and he highlights that very serious people with lots of money and expertise are working very hard on it.
The panelists for this section were:
Each represented party brought a very different take to the hearing.
Barry Silbert was primarily focused on ensuring that the NYDFS didn’t regulate institutions it didn’t need to. He advocated for regulating exchanges or other activities that could result in money laundering or other illicit activity, but cautioned regulators against stymying innovation by regulating miners, businesses that utilize Bitcoin, or other non-exchange Bitcoin ecosystem participants. He also called for making sure that whatever regulations were put in place for exchanges were not overly laborious, another important move.
Jeremy Liew had the best sense of humor and the best accent. He was critical in a clever fashion of the statements made by the board at a few points. Most notably, Mr. Lawsky said at one point (paraphrase): “What about Silk Road, how do we stop things like that?” One of the panelists started to respond, but Jeremy got there first. He said (paraphrase): “It seems like you’ve already stopped it. You’ve already done that. Traditional law enforcement did an excellent job using already existing regulations, and they shut it down. It’s easier to do that than it is to shut down cash-based drug dealers who are actually anonymous.” Jeremy also made a compelling case for creating a regulatory framework that would allow for the launch of a major US exchange like Coinsetter to happen more quickly. His primary argument was simple: we want America to be at the forefront of this revolution, and currently all the major exchanges are overseas. Let’s make sure that Americans can open a Bitcoin exchange. I’ll be watching closely for more of his public appearances. Jeremy was clever, interesting to listen to, and precise with his words.
Fred Wilson came across as the “old man” of the group, which is not entirely fair. He was older than the other participants, but that is mostly because they’re all quite young. Mr. Wilson was the most direct and aggressive of the panelists, calling for less regulation than he expected they might wish to impose. He also proposed an anti-money laundering plan that would be similar to the “global entry” program we use for frequent international travelers. Essentially, you frontload a lot of time getting investigated, filling out paperwork, and guaranteeing your identity, but after doing so you’re mostly just given a free pass to do as you like. Mr. Wilson seemed to suggest that something like this would be a more efficient and secure method of preventing money laundering than the current processes, which often take much too much time and manpower. His alternative system would allow the highly tech savvy Bitcoin ecosystem to automate the process of AML/KYC verification.
Cameron and Tyler Winklevoss, representing their new Bitcoin-focused ETF, were quite appropriately reserved in commentary. Their answers were nearly always focused on possibilities, rather than actualities, and correctly so. Their most important contribution to the hearing discussion, in my view, was as the consistent voice of reason. They always advocated for balanced, careful, and above all transparent approaches to regulation. When Mr. Lawsky framed a question about money laundering as an false dichotomy of stamping it out or allowing it, I believe Cameron Winklevoss was the one to quickly respond by explaining that with money laundering as with everything else, we have to be focused on doing the most possible good. He reiterated that there must be an available point of balance which they could retreat to, where most money laundering is prevented, and most innovation is allowed. That point, he claims, is where regulation should be aiming for. I think he’s quite correct in that assertion.
The hearing ended on a very positive note: Mr. Wilson ended a brief comment with this (paraphrased) statement: “Bitcoin is American. Bitcoin is freedom.” Tyler Winklevoss picked up the banner shortly after him to reiterate the point: allowing and properly regulating Bitcoin is the American thing to do. It allows for greater individual economic freedom and technological progress. It was an excellent thing to have as the end to the first hearing, and certainly something great to put in a headline.
Overall, this first hearing was very positive. The second hearing is from 2:30 to 4:30 PM today, and I’ll be watching closely. I’ll publish a similar summary of that hearing after its conclusion.