US Senate Tackles CryptocurrenciesTrevor Gerszt
The US Senate Banking Committee recently held a hearing entitled “Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission.” The hearing featured testimony from SEC Chairman Jay Clayton and CFTC Chairman Christopher Giancarlo.
It’s interesting, and telling, that the Committee used the term virtual currencies rather than digital currencies or cryptocurrencies. Virtual currency is a term that has hardly seen any use since the advent of cryptocurrencies. It conjures up memories of the in-game currency used in World of Warcraft or the Linden dollars in Second Life. And that probably accurately describes Congress’s understanding of digital currencies, stuck in a years-old mindset. Thankfully the financial regulators who testified yesterday seemed to have a slightly better understanding of the digital currency and cryptocurrency landscape.
The majority of Chairman Clayton’s testimony focused on initial coin offerings (ICOs), which the SEC classifies as securities. From his perspective, the attempts by some ICO promoters to bypass securities laws and investor protections were a cause for alarm. If any regulatory action were to come from the SEC, expect it to come with respect to ICOs, not to normal Bitcoin or cryptocurrency products.
One disconcerting piece of Clayton’s testimony was his mention that “we are open to exploring with Congress, as well as with our federal and state colleagues, whether increased federal regulation of cryptocurrency trading platforms is necessary or appropriate.” That’s concerning for two reasons, the first of which is that SEC has no authority to oversee currencies or commodities, including exchanges that trade currencies. Why SEC is then looking into increased regulation of Bitcoin and cryptocurrency exchanges is puzzling. But the second reason to be concerned is that it indicates that regulators may very well attempt to set up a cryptocurrency-specific regulatory regime that could subject cryptocurrency exchanges to additional scrutiny.
Chairman Giancarlo’s testimony was measured and thoughtful. He made a good point in highlighting the fact that, despite all the attention being paid to cryptocurrencies, the market value of Bitcoin and cryptocurrencies overall is far smaller than the stock market. Thus, the “dangers” to the financial system that some commentators speculate about are largely overblown.
One particularly interesting part of Giancarlo’s testimony was where he mentioned that “current law does not provide any U.S. Federal regulator with such regulatory oversight authority over spot virtual currency platforms operating in the United States or abroad.” That’s a questionable statement, as every financial transaction in the US is subject to oversight by some agency in some way. But it indicates that CFTC isn’t attempting to seek additional authority over spot markets, confining its oversight activities to Bitcoin futures markets and other platforms that may attempt to engage in cryptocurrency derivatives trading.
All in all, the hearing provided a good insight into the thinking of federal regulators. It should be clear to Bitcoin IRA investors that no regulatory crackdown will be coming in the cryptocurrency sphere, and that if any new regulation is put into place that it will focus on ICOs, not regular cryptocurrency trading.