On February 6, 2018, a hearing took place before the Senate Banking Commission (SBC). Here, Jay Clayton, the chairman of the Securities and Exchange Commission (SEC), spoke with Christopher Giancarlo, the chairman of the Commodity Futures Trading Commission (CFTC). Specifically, they discussed the potential future of cryptocurrency in this country. The hearing had been much awaited and caused prices to plummet. Nevertheless, the outcome of the hearing has left coin watchers cautiously optimistic.
Possible Regulations for Cryptocurrencies
The hearing was held openly and it gave Clayton and Giancarlo the opportunity to share testimonies on possible regulations and elements that should be regulated. Furthermore, they looked at the possible future of blockchain tech and cryptocurrencies. Of interest was that their testimonies divided the world of virtual currencies into three distinct areas:
1. Cryptocurrencies, which could eventually replace dollars
2. ICOs, best compared to stocks and other such investments
3. Distributed ledger technology, which is the blockchain, meaning the focus is on the technology behind the system.
Clayton Raised Concerns About Frauds and Scams while Giancarlo Was More Enthusiastic
During the hearing, Clayton was quite solemn, particularly with regards to the ICO which has been fraught with fraud and scam accusations. Giancarlo, meanwhile, was curious and enthusiastic, as he saw an emerging market. When queried about what a cryptocurrency’s true value is, Giancarlo went into some detail regarding the mining process and how this is linked to the price, but how those were correlated was not discussed. Clayton’s response, however, was wholly different.
“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’s Concern About the Impact of Market Volatility on How Payments Are Made
In Clayton’s answer, he also suggested that cryptocurrencies may not be as useful as a method of payment. He was particularly concerned about market volatility and its possible effect on how payments are made. Giancarlo, however, took a much more positive approach.
“The CFTC can now obtain trading data and analyze it for fraud and manipulation. With Bitcoin futures we’re now having visibility into underlying markets and spot markets that we would not otherwise have.”
Consensus on the Need for Regulations
Giancarlo and Clayton did agree that the fact that the exchange platforms are unregulated is an area of concern. Both agreed that full clarity on this was needed, so as not to confuse users into thinking that regulations are in place.
“To be clear, the CFTC does not regulate the dozens of virtual currency trading platforms here and abroad.”
The CFTC will not be able to offer any of the security and protection that customers expect, including platform safeguards and cyber protection. Clayton felt that a federal plan would have to be developed to address this naivete of the average consumer.
“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.”
Clayton also had very specific concerns about the system of ICOs and particularly on how these function as a security. He is particularly concerned about the fact that ICOs are trying to mask themselves as something other than a security, perhaps in an effort to avoid regulations.
Senator Mark Warner’s Concerns
During the hearing, Senator Mark Warner also spoke up. He is quite experienced in this field and felt that there were significant issues with how cryptocurrencies are regulated. Specifically, he said that he wanted to ensure that all efforts become more coordinated across the board. He sees the positive side of the blockchain and of crypto assets, but he feels they could be done better.
There were some serious concerns about what the hearing could have meant for the cryptocurrency market. Some people had apocalyptic visions. Nevertheless, it appears that things are not quite that bad, while it must also be acknowledged that the CFTC and SEC have only just begun to scratch the surface of the matter.