Both chairman of the Securities and Exchange Commission (SEC) and chairman Christopher Giancarlo of the Commodity Futures Trading Commission (CFTC) will warn Congress tomorrow about how risky cryptocurrencies are for investors and the financial system as a whole. According to prepared testimony published today, they will advocate for reviewing the smattering of rules guiding cryptocurrency exchanges, and potentially replacing them with federal regulation. Ultimately, they want to safeguard everyone without stifling innovation.
"A key issue before market regulators is whether our historical approach to the regulation of currency transactions is appropriate for the cryptocurrency markets. Check-cashing and money-transmission services that operate in the U.S. are primarily regulated by states. Many of the internet-based cryptocurrency-trading platforms have registered as payment services and are not subject to direct oversight by the SEC or the CFTC. We would support policy efforts to revisit these frameworks and ensure they are effective and efficient for the digital era," Giancarlo and Clayton wrote in an op ed in The Wall Street Journal.
Virtual currencies fall into the jurisdiction between the SEC, CFTC, the Treasury Department and state regulators. For example, the SEC has claimed that public initial coin offerings (ICOs) are securities and subject to investor protection, while the CFTC has considered virtual currencies to be commodities and overseen cryptocurrency derivatives since 2015, according to Reuters. But neither have the authority to regulate the market or exchanges...yet, which is what we may learn at the hearing when both chairmen go before the Senate Banking Committee.
Sources in Congress told Reuters that the hearing will mostly explore whether both of the agencies can actually oversee exchanges, as well as protect investors from market volatility and fraud, especially from cybercrime.
Recent events have reminded us of cryptocurrency's relative insecurity, from quiet but significant thefts during ICOs to the hacker who made off with $534 million in NEM tokens from the exchange Coincheck a week ago. And as the leading cryptocurrency bitcoin dips below $7,000 today from a high of $18,000 last month, the whole market's stability is uncertain.
"The CFTC and SEC, along with other federal and state regulators and criminal authorities, will continue to work together to bring transparency and integrity to these markets and, importantly, to deter and prosecute fraud and abuse," Giancarlo and Clayton wrote in the op ed. "These markets are new, evolving and international. As such they require us to be nimble and forward-looking; coordinated with our state, federal and international colleagues; and engaged with important stakeholders, including Congress."