On a day when cryptocurrencies were the talk of Wall Street, Washington showed it has a lot of catching up to do.

As bank regulators testified for hours on Capitol Hill, Bitcoin and other tokens whipsawed between huge losses and then gains. Unsurprisingly, lawmakers asked lots of questions about the asset class of the moment and how the U.S. should police it. Watchdogs mostly said it’s too early to say.

“We are in the process at the Fed of studying the various ways to address this issue,” said Randal Quarles, the Federal Reserve’s Vice Chairman of Supervision. He added that federal agencies need time to think through what’s the right regulatory approach before they can then create a framework for oversight.

Signs are increasingly emerging that they better get on it. Bitcoin plunged 31 per cent Wednesday -- triggering billions of dollars of losses -- before surging 33 per cent. The volatility overwhelmed crypto exchanges, which were beset by disruptions. The wild trading has been the norm this month, fueled by Elon Musk tweets and China reiterating that coins can’t be used as a form of payment.

Meanwhile, U.S. authorities have long raised concerns that the market is rife with manipulation, is being used by criminals for illicit transactions and that it’s attracting unsophisticated investors who are taking big risks with no one looking over their shoulders.

‘Serious issue’

At one point during Quarles’s appearance before the House Financial Services Committee, Representative Al Green pleaded with him to offer ideas on how Congress should regulate the market.

“I’m trying to figure out what we can do,” said Green, a Texas Democrat. “This is a serious issue. We need your expertise.”

Other watchdogs signaled that they are also in the early stages of examining how to respond. Acting Comptroller of the Currency Michael Hsu, who was testifying alongside Quarles, said he and other regulators have discussed setting up an interagency task force on tokens.

Senate Banking Committee Chairman Sherrod Brown separately said Wednesday that the volatility of cryptocurrencies raises concerns that he has about all unregulated aspects of the financial industry.

“It tells me that fintech companies and others operating outside the regulatory system can pose a danger,” said Brown, an Ohio Democrat. “I don’t know the solution yet with these, but it’s cause for concern.”

Senator Mark Warner of Virginia, the chairman of the Intelligence Committee, said he sees value in the distributed ledger technology underlying cryptocurrencies, but sorting through how the market will work and should be overseen will take time.

“This has been something that’s begging for some oversight,” he said.

Ransomeware payments

Pennsylvania Senator Pat Toomey, the top Republican on the Banking Committee, said he doesn’t yet see a need for regulating cryptocurrencies.

“It may get to that point, but not based on volatility of the asset price,” Toomey said in an interview. “There is no cryptocurrency that is a true currency at this point, in the sense that it is not widely used as a medium of exchange. If that were to change, then we would have to ask ourselves a lot of questions about the use of it.”

Toomey acknowledged one area where it is used regularly is for payments in ransomware attacks, including this month’s hack of Colonial Pipeline Co. that led to fuel shortages across the Eastern U.S.

“That is one of the very small, narrow exceptions where it actually is used as a currency,” he said. “Illicit, but nevertheless, a currency.”

Policing exchanges

Securities and Exchange Commission Chairman Gary Gensler has advised lawmakers on at least one change that he thinks they should make: give regulators clear authority over crypto exchanges. He said earlier this month that the lack of oversight represents a “gap in our system” that denies traders basic investor protections.

Gensler emphasized the volatile nature of the world’s biggest digital asset: “It could go to zero or it could go high and that’s the nature of it,” he said. Just a few days later, the SEC’s staff underscored the regulator’s concern in a statement calling Bitcoin “is a highly speculative investment.”

Some lawmakers admitted that despite crypto’s status as a global investment craze, they still don’t know much about it.

“I’m in learning mode, as we all are,” Senator Richard Blumenthal, a Connecticut Democrat, said in an interview.