Davidson: Regulatory clarity needed to spur cryptocurrency, financial tech innovation

Warren Davidson talking to students.

It may seem unusual to hear a Republican lawmaker call for more regulation rather than less. But U.S. Rep. Warren Davidson says that the U.S. needs to have more regulation of cryptocurrency and financial technology because right now, it has virtually none.

“I'm frustrated because for the five years I'd been in Congress, I've been talking about doing some sort of regulatory clarity for the fintech space and crypto in particular,” he said. “We're messing it up badly, frankly, not because we have heavy-handed regulation, we just don't have any regulation. We're having regulation by enforcement.”

Davidson, the representative for Ohio’s Eighth District, was the featured speaker for the latest Farmer School of Business Executive Speaker Series presentation, invited by the Miami University Blockchain Club. The ESS brings key leaders to campus and provides an engaging atmosphere in which they can reflect on their experiences. Students and faculty members gain insights about how these executives think, manage and inspire.

Davidson told students that by not having clear regulations, the U.S. risks falling behind other countries in financial technology innovation.

“If you look at the agricultural revolution, that technology and innovation happened in America. You look at the industrial revolution and it got underway elsewhere, but really accelerated in the United States. The automobile era flourished foremost in America. Aviation, the Wright brothers, America flourished. Aerospace, America flourished. The computing age, America flourished. The internet age, America has flourished. And right now I think we're in the fintech age, we're in an era where financial innovation is the driver, I think, for this era of global innovation.” he explained.

Davidson said he became interested in blockchain and cryptocurrency technology when he worked in the private sector, using the technology to more seamlessly make financial transactions with suppliers halfway around the world. He noted that fintech isn’t a partisan issue in Congress as much as it is a knowledge issue. “People just don't understand it very well,” Davidson remarked. “This isn't the burning platform for most people in Congress. So if they don't already know about it, they're not highly motivated to learn about it.”

Davidson said the U.S. should look to how it handled regulation in the early days of the internet as a guide to what it should do moving forward. “One of the things that Congress got right in the 90s was saying, ‘We're going to take a kind of hands-off approach to the internet. We have to let it grow. We're not going to crush it by putting all these heavy, burdensome things on it,” he recalled. “Part of the innovation happened because we use the power of government to protect the innovation.”

Davidson and U.S. Rep. Darren Soto introduced the Token Taxonomy Act in 2018 and in 2021, which would define a “digital token” and stipulate that securities laws would not apply to cryptocurrencies after they become a fully-functioning network. “Because you can't really attract capital if the people that are putting their investment at risk think that you're somehow going to be regulated as a security. You can't really move it without having somebody who's a licensed broker dealer to move the security,” Davidson said. “Once you're treated as a security, with regulatory compliance issues and costs, it's essentially like going public from the get-go, but without a customer.”

Davidson said that regulatory clarity will continue to be a critical step towards wider institutional adoption of cryptocurrency and financial technology. “I tell some of my Democrat colleagues, ‘Look, you finally found a Republican that wants to regulate something, come on, work with me, people!’ I'm not talking about heavy regulation, I'm talking about regulatory clarity that is positive and affirmative in the sense that it protects private digital wallets and protects the ability to get yield on products,” he noted. “And it is incredibly high stakes to get this right.”