The financial technology industry is anticipating a windfall of attention and possible scrutiny following upcoming House and Senate hearings on Libra, the new cryptocurrency announced by Facebook last month.
Advocates for the growth of blockchain technology and digital currencies say Facebook’s entry into fintech is an exciting development for an industry that still exists in relative obscurity because of public misconceptions about the technology and lack of clear regulations governing their use.
Since Facebook’s announcement, an increasing number of lawmakers are seeking information on cryptocurrency, said Kristin Smith, director of external affairs at the Blockchain Association.
“We have everyone’s attention,” she said.
Still, a worry persists that Facebook’s bad reputation in Washington and declining favorability among the general public means lawmakers will use next week’s hearings, before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday, as an opportunity to paint Libra in a negative light.
“Congress thinks Facebook has lost the trust of some of the public,” Smith said. “It’s probably pretty good politics to beat up on them right now.”
In an effort to keep the hearings civil, the Blockchain Association has offered a cryptocurrency briefing to every member of both committees, Smith said. But it seems unlikely lawmakers will pass up a chance to grill Facebook executives in a public setting.
Sen. Sherrod Brown of Ohio, the ranking Democrat on the Banking Committee, has already expressed concerns about how Libra, which Facebook says will be anonymous and managed by a Swiss nonprofit called the Libra Association, will handle certain privacy issues.
And at least one other senator on the committee has made up his mind that the project fits into what he considers the larger machinations of Mark Zuckerberg, Facebook’s chief executive
“He wants to control the world’s money supply,” said Louisiana Republican Sen. John Kennedy. “What could possibly go wrong?”
Other lawmakers are hopeful for a set of more substantive hearings. Democratic Rep. Ro Khanna, who represents parts of Silicon Valley, says he wants the committees to address privacy and how Libra might affect competition within the fintech industry. He doesn’t want lawmakers to grab the spotlight.
“People have to do their homework,” Khanna said. “This shouldn’t just be based on sound bites.”
A spokesperson for Facebook said the company looks forward “to working with lawmakers as this process moves forward, including answering their questions at the upcoming” hearings.
Assuming representatives from Facebook or the Libra Association testify at one or both hearings next week — witness lists have not been released — the consensus among industry observers is that the most serious inquiries from lawmakers will deal with the privacy of Libra’s users.
For instance, critics like Brown have pointed out Facebook’s slew of privacy troubles over the past few years and wondered if the company plans to collect and maintain its users’ financial data gathered through Libra.
“Facebook is already too big and too powerful, and it has used that power to exploit users’ data without protecting their privacy,” Brown said on Twitter following the announcement of Libra. “We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight.”
Others are likely to ask about the extent of Libra’s promised anonymity. Illinois Democratic Rep. Bill Foster, who sits on the Financial Services Committee and co-chairs the Congressional Blockchain Caucus, said full anonymity could attract use by criminal traffickers and money launderers.
If Libra is indeed completely anonymous, Foster wants to know whether a judge would have the ability to reveal the identities behind a fraudulent transaction, or reverse a mistaken one.
“I foresee big political problems if this is a truly anonymous and irreversible transaction,” Foster said.
Another issue that may come up is whether Facebook’s entry into the cryptocurrency market violates antitrust laws designed to protect consumers by ensuring robust competition. The House Judiciary Committee is already investigating possible antitrust violations by Big Tech companies, and Sen. Elizabeth Warren, a 2020 Democratic presidential candidate, has proposed breaking up companies including Facebook, Google and Amazon.
Some lawmakers, like Silicon Valley’s Khanna, want to make sure that Libra won’t smother opportunities for other blockchain companies. Facebook may avoid facing greater antitrust concerns because the Libra Association is likely to remain a separate entity, Smith said, but if the company seeks to build Libra functionalities into its platform, it could raise suspicions.
Boost for industry
Smith is hoping that some lawmakers ask how Congress can help make cryptocurrencies more ubiquitous. One of the group’s legislative priorities is a tax exemption for transactions under a certain amount so that a cryptocurrency can be used for everyday transactions without needing to declare capital gains. Currently, cryptocurrencies are viewed as properties, which are subject to capital gains taxes. A bill that would accomplish this has been introduced by Democratic Rep. Darren Soto of Florida.
But largely, the industry’s main goal is to get lawmakers excited about cryptocurrency while maintaining a healthy distance from Facebook.
“Our big message to the Hill is: Don’t lump everyone in with Facebook,” she said. “It’s a little complicated, but these things are ultimately a force for good.”
Correction, July 9, 2019, 11:40 a.m. | This story has been corrected to reflect the Blockchain Association’s position that cryptocurrency transactions below a designated amount should not be taxed as capital gains.