The heads of two key U.S. investment regulators will testify before the Senate today, as Congress ponders whether federal agencies require additional powers to regulate the digital asset industry. Testimony by chairman of the Commodity Futures Trading Commission (CFTC) Christopher Giancarlo and chairman of the Securities and Exchange Commission (SEC) Jay Clayton before the Senate Banking Committee will take place as cryptocurrencies endure one of their worst-ever slumps, potentially darkening the mood.
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The hearings, which start February 6th 2018 at 10:00AM EST, are titled “Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission.”
Both Giancarlo and Clayton have released their testimonies ahead of time anyway, meaning there should be few surprises.
The Senate is mainly on a fact-finding mission, according to Reuters — with key issues being protection of investors from volatility and fraud, theft and losses at digital asset exchanges, and what powers the SEC and CFTC have (or need) in this area.
That’s not to say the hearings are inconsequential, though. In fact, the coincidental timing right as digital asset markets suffer some of their biggest single-day crashes will give the hearings a more ominous tone.
Bitcoin (BTC), registering a 23 percent drop in value over the past 24 hours, is actually one of the smallest losers of the week. More recent tokens du jour like NEO, Lisk, Populous, ICON, Nano, and OmiseGO suffered over 35, even 40+ percent drops.
If rocket-like gains in December highlighted the risks of market bubbles, the events of the past two weeks — and especially the past two days — have proved the dangers. The news may prompt Congress to clamp down heavier with regulation than it would have otherwise.
Exactly who has jurisdiction over the various digital assets, ICOs, cryptocurrencies and blockchain projects — and what these technologies even represent — is still undefined. And for every clear legal definition that exists, there are teams working to ensure their particular token project does not fit it.
Clayton’s testimony highlights the “strong relationship” he has built with Giancarlo on the issue, adding their combined staffs have also been collaborating closely to protect U.S. markets amid several issues, of which cryptocurrencies and ICOs are just the latest.
The agencies seem mainly concerned with ICOs. Although cryptocurrencies have been around for almost a decade now, it was ICOs that really took off in 2017 and kickstarted the year’s exuberance. When investors back the right ventures, the testimony reads, the billions of dollars they pumped into new ventures did benefit the economy.
“But when our laws are not followed, the risks to all investors are high and numerous – including risks caused by or related to poor, incorrect or non-existent disclosure, volatility, manipulation, fraud and theft.”
It also adds that “to date ICOs have largely been” securities — automatically suggesting the SEC would have jurisdiction over the industry. The CFTC pulled a similar move in 2015 by declaring digital currencies to be (surprise) commodities.
My defining and regulating themselves as money-transmission services, digital asset exchange platforms subject themselves only to various state-based laws without formal federal oversight from the SEC and CFTC.
Both agencies would potentially like to see this change, as the SEC’s testimony noted:
“As Chairman Giancarlo and I stated recently, 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. We also are supportive of regulatory and policy efforts to bring clarity and fairness to this space.”
It also claimed the SEC and CFTC were not trying to undermine innovation in the capital markets, noting that “America was built on the ingenuity, vision and spirit of entrepreneurs who tackled old and new problems in new, innovative ways.”
However it’s also unlikely that government regulators would ever sit back and watch a wild-west scenario, as digital asset markets have appeared at times, to continue without intervention. That became particularly clear as more and more money started flowing into the space.
Rather than await another major investment disaster that could involve (and bring down) large institutions, the federal government may decide to act at this nascent stage.
What do you think will be the end result of these Senate hearings? Tell us what you think in the comments.
Images via Pixabay, SEC, YouTube