Two connected themes emerged from US Treasury Secretary Scott Bessent’s appearance before the Senate Banking Committee on Thursday 5 Feb. The first was competition from China. The second was the Administration’s push to strike a balance between effective oversight and allowing the crypto sector room to develop.
Chinese threat
Responding to a question from Senator Cynthia Lummis (Rep, Wyoming) on whether China is seeking to supplant US financial leadership, Bessent pointed to reports of Chinese digital assets potentially backed by assets other than the country's own currency.
“There are lots of rumours of Chinese digital assets that may be backed by something other than the Renminbi, perhaps gold-based,” he said. “So I would not be surprised.”
Bessent added that Hong Kong has become a testing ground. “They have a very large sandbox in Hong Kong, and the Hong Kong Monetary Authority is actively travelling the world, looking at different mechanisms,” he said.
Mainland China has banned all digital asset trading, including stablecoins, since 2021, a ban reiterated as recently as December. Hong Kong, however, has been allowed to develop as a crypto hub.
Passing clarity
Bessent stressed the importance of the Digital Assets Market Clarity Act. “It’s impossible to proceed without it,” he said. “We have to get this Clarity Act across the finish line.”
The bipartisan bill has passed the House and is now being amended in the Senate. However, recent comments from industry leaders have cast doubt on its prospects.
In a post on X on 14 Jan, Coinbase chief executive Brian Armstrong said the company could not support the bill as written, arguing that it would be “materially worse than the current status quo”.
Armstrong highlighted four concerns: a de facto ban on tokenized equities; excessive government access to financial records; the subordination of the Commodities Futures Trading Commission to the Securities and Exchange Commission; and the absence of rewards on stablecoins.
In response, Bessent told the committee there was “a nihilist group in the industry who prefers no regulation over this very good regulation,” adding that market participants opposed to the bill “should move to El Salvador.”
“We’ve got to bring safe, sound and smart practices and the oversight of the US government, but also allow for the freedom that is crypto,” he said.
Long-term planning
Bessent said he expects bipartisan work on the legislation to continue and that it will “get across the line this year.”
As Sandmark reported in January, implementation of the Clarity Act could take several years once passed. Justin Slaughter, vice president of regulatory affairs at Paradigm, has said the transition from legislation to enforceable law could span nearly two presidential terms.
The bill requires the creation of around 45 detailed rules. Drawing on the experience of the Dodd-Frank Act of 2010, Slaughter noted that many such rules took between three and eight years to be finalised.
That timeline could give China time to close the gap with the US, and potentially overtake it.
