As a seasoned analyst with over two decades of experience observing political dynamics, I find myself deeply intrigued by the evolving relationship between traditional finance and decentralized finance (DeFi). The recent Congressional hearing on DeFi serves as a microcosm of the broader tension between innovation and regulation.
Pondering on the ongoing debate between Democrats and Republicans regarding Decentralized Finance (DeFi), I can’t help but wonder about the implications of President Trump’s silence. Does his silence signal indifference towards the crypto community, or is it perhaps a calculated move of strategic neutrality?
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DeFi gets the spotlight
September 10th marked a significant milestone as the very first Congressional hearing on Decentralized Finance (DeFi) was held, signifying a crucial step forward in its development.
In a session titled “Exploring DeFi: Unraveling the Potential of Decentralized Finance,” Congressman French Hill presided over a discussion that continued for approximately 150 minutes.
Lawmakers from the United States convened to deliberate on the possible advantages and drawbacks that Decentralized Finance (DeFi) might present within their financial structure.
The hearing exposed a clear divide among lawmakers. Republicans, led by Hill, were optimistic about DeFi’s ability to remove intermediaries and transform financial markets.
According to Hill’s explanation, by replacing autonomous, self-executing code with intermediaries in the financial system, Decentralized Finance (DeFi) has the potential to reshape how financial markets and transactions are now organized and managed.
In the meantime, Democratic legislators expressed worries about DeFi’s possible misuse, emphasizing its function in facilitating illegal activities. On the other hand, Republicans suggested less restrictive rules, while Democrats pushed for tighter control, pointing out the dangers of unlawful use.
How might this hearing impact the future of Decentralized Finance (DeFi) and the overall cryptocurrency market, considering the upcoming U.S. presidential elections?
A clash of perspectives on DeFi
The hearing itself turned into a battlefield of opinions, with sharp contrasts in how lawmakers viewed DeFi. The subcommittee chair, Hill, kicked off the discussion by focusing on the opportunities DeFi and tokenization could offer to finance.
On the other hand, not everyone shared this viewpoint. Representative Brad Sherman, a Democratic congressman from California, held a more skeptical stance. He voiced worries that Decentralized Finance (DeFi) could simply be used as a means to dodge taxes, particularly by the affluent elite.
This situation involves attempts to exempt billionaires from paying income tax… Each instance where a billionaire manages to evade taxes is a moment when a member of the Freedom Caucus gains their political feathers.
In response to Sherman’s worries, Peter Van Valkenburgh, as the director of research at Coin Center, presented an opposing viewpoint. He conceded that tax evasion is indeed illegal, yet he emphasized that DeFi’s open and decentralized nature makes it challenging for wrongdoers to conceal their actions due to its transparent record-keeping system.
Avoiding taxes illegally is a criminal act, and it’s crucial to enforce these laws vigorously. However, I am of the opinion that a completely monitored and regulated financial system, up to 100%, may not be necessary due to tax evasion and its prevalence.
Van Valkenburgh further highlighted the perplexity concerning tax regulations issued by the Internal Revenue Service. He suggested that numerous cryptocurrency users are eager to adhere to the tax laws, yet they struggle due to a lack of explicit guidelines on the correct compliance methods.
In the realm of cryptocurrencies, one persistent challenge has been obtaining straightforward tax advice from the Internal Revenue Service (IRS) regarding how American citizens should settle their taxes when they accrue capital gains, or even wages, within these digital platforms.
Instead, he pointed out that it’s typically criminal elements who prefer concealing their ill-gotten gains within conventional banking systems, rather than the open and traceable blockchain platforms.
From another perspective, Mark Hays, a Senior Policy Analyst at Americans for Financial Reform, presented DeFi in a more unfavorable manner. He characterized the sector as unstable and full of fraudulent activities, where investors frequently suffer significant financial losses.
Hays emphasized the importance of enforcing established securities regulations on Decentralized Finance (DeFi) platforms, ensuring investor protection within these systems.
In contrast, Amanda Tuminelli, head of legal affairs at DeFi Education Fund, emphasized a unique perspective. She underscored DeFi’s capacity for fostering financial democratization. As Tuminelli explained, conventional financial structures frequently depend on intermediaries who function as gatekeepers in this context.
As a crypto investor, I’ve often pondered upon the stark contrast between traditional banking systems and Decentralized Finance (DeFi). While big banks may restrict access to their system based on discriminatory or arbitrary reasons, DeFi stands as a beacon of inclusivity. In essence, if you have an internet connection, you can tap into the world of DeFi – making it the epitome of financial inclusion for all.
Tuminelli proposed that viewing Decentralized Finance (DeFi) in the same light as traditional finance might not be accurate, given their inherently distinct foundations. Instead, she advocated for regulatory frameworks to acknowledge and address the self-custodial characteristics and anonymity of transactions within these decentralized systems.
Crypto left out of the presidential debate spotlight
In the second round of debates for the 2024 U.S. Presidential Election on September 10th, Vice President Kamala Harris and former President Donald Trump engaged in a discussion. Interestingly, despite Donald Trump’s strong support for cryptocurrency, the debate failed to touch upon this topic at all.
Instead, the discussion centered solely around conventional economic matters, omitting any mention of cryptocurrencies, blockchain technology, or advanced financial technologies.
During the debate, it seemed that Harris’ robust performance caused some discomfort for Trump, especially since he found it challenging to justify his stance on sensitive topics such as abortion where they disagreed.
The events appeared to influence the cryptocurrency market, as Bitcoin (BTC) dipped from approximately $58,000 down to $56,000 following the discussion. As of September 11th, it has shown some recovery, maintaining a level around $56,800.
During that time frame, Ethereum (ETH), currently ranked as the second largest cryptocurrency by market capitalization, saw a slight drop of approximately 0.5%. Its value hovered near $2,340 in trading activity.
To everyone’s astonishment, despite Trump often advocating for less government interference in financial markets, his chances of victory, as per the data from the betting site Polymarket, have dropped from 52% prior to the debate to 50% currently.
During the debate, a CNN instant poll showed Harris leading by a significant margin, as 63% of spectators believed she performed better than Trump. Yet, many participants made it clear that this debate would not affect their voting decision in November.
As the campaign progresses and more people call for a third discussion, we’ll have to wait and see if cryptocurrency ultimately becomes the main focus.
What to expect next?
As a researcher following the developments within the Biden Administration, it’s evident that Democrats have expressed consistent caution towards cryptocurrencies, often emphasizing potential risks and advocating for stricter regulations. Conversely, Vice President Kamala Harris has yet to publicly voice her thoughts on the matter, leaving her position on this topic somewhat enigmatic.
Over the past few months, Donald Trump – a former critic of cryptocurrencies – has adjusted his stance to appeal to voters with pro-crypto leanings. Notably, he’s displayed increased acceptance and interest in both blockchain technology and digital currencies on various occasions.
Similarly to Harris, he chose not to speak up at crucial moments, for instance, during the Twitter spat between Trump and Musk in August, and also during the second presidential debate, where cryptocurrency was conspicuously missing from the discussion.
The outlook for cryptocurrency and Decentralized Finance (DeFi) in the United States is currently unclear, given the approaching election. The stance of the incoming government towards this expanding industry may significantly shape its future development, including both innovation and regulations within the financial sector, potentially leaving a lasting imprint.
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2024-09-12 00:17