Today in a hearing before the Senate Banking Committee, Securities and Exchange Commission Chairman Jay Clayton and Commodity Futures Trading Commission Chairman Christopher Giancarlo revealed about what the near-term U.S. regulatory destiny of cryptocurrency might look like. In a week of plunging prices and bad news, the hearing struck a tone that coin observers could reasonably interpret as unexpectedly optimistic.
During the course of the open hearing, Clayton and Giancarlo traded attest over what can be regulated, what should be regulated and how, while offering a broader view on the long-term future of virtual currency markets and blockchain technology.
The attest denoted a useful distinction among 3 pillars of the virtual currency ecosystem (for lack of a better unifying term): cryptocurrencies, “a replacement for dollars;” ICOs, “like a stock offering;” and distributed ledger technologies, or the technical framework better known as blockchain.
During the hearing, on the SEC side, Clayton struck a relatively ceremonial tone focused on ICO cheating concerns, while the CFTC’s Giancarlo came across as genuinely enthusiastic and nosy about the appearing market.
On a question of the intrinsic value of cryptocurrency:
Giancarlo protected Bitcoin’s value, explaining the process of mining and how it is related with price (or sometimes breaks from that correlation, as economists he cited have suggested).
Clayton on the same question:
There are a lot of smart people who think there’s something to the value of cryptocurrency and the international exchange and I’m not seeing those benefits manifesting themselves in the market yet. I look at this from the perspective of Main Street investors and they should understand that.
Clayton gave further comments doubting on the utility of cryptocurrencies as currency, citing common concerns around how market variability makes transactions difficult.
On advantages of a Bitcoin futures market:
“The CFTC can now obtain trading data and analyze it for fraud and manipulation,” Giancarlo said.
“…With Bitcoin futures we’re now having visibility into underlying markets and spot markets that we would not otherwise have.”
Concerns around consumer misconceptions of cryptocurrency trading platforms:
Both chairmen expressed concerns about the unregulated character of cryptocurrency exchange platforms and their potential to mislead customers into believing that a regulatory net of some kind exists.
“To be clear, the CFTC does not regulate the dozens of virtual currency trading platforms here and abroad,” Giancarlo stated, clarifying that the CFTC can’t require cyber protections, platform safeguards and other things that customers might expect from traditional securities.
Clayton called for an interagency coordinated plan among states, federal regulators and the SEC and CFTC to address customer naiveté over unregulated trading platforms.
I think our Main Street investors look at these virtual currency platforms and assume they are regulated in the same way that a stock is regulated and, as I said, it’s far from that and I think we should address that.
On ICOs as a security:
“I believe every ICO I’ve seen is a security… You can call it a coin but if it functions as a security, it is a security…,” Clayton said. “Those who engage in semantic gymnastics or elaborate re-structuring exercises in an effort to avoid having a coin be a security are squarely in the crosshairs of our enforcement provision.”
On coordinated regulation:
After Senator Mark Warner, who expressed more familiarity with the area than most of his peers, criticized the patchwork nature of regulation that allowed Bitcoin futures while still blocking ETFs, calling for a more “coordinated effort” among regulatory bodies, both witnesses agreed without hesitation. In doing so Warner offered a bullish vision. “The potential writ large amongst crypto assets and the basic blockchain could be as transformational as wireless was years ago. I think we shall need a much more coordinated effort,” Warner claimed.
All told, the audition was far from apocalyptic for regulationphobes. While it’s clear that the CFTC and SEC have only scratched the surface of the kind of rule sets they’d like to put in place, their plans seemed to be extremely focused on defending customers from threats like headlong ICO “fraudsters” and unsafe exchanges rather than discouraging growth. For anyone interested in the long-term health and viability of virtual currencies, that should come as good news.