The Commodity Futures Trading Commission (CFTC) and US Securities and Exchange Commission (SEC), met the morning of February 6th, 2018, to discuss their roles in Blockchain, virtual currencies, and ICOs.
The Committee on Banking Housing and Urban Affairs set in Washington D.C. at the Dirksen Senate building met in open session for about 2 hours. Before the hearing begins, testimonies were released on behalf of both of the witnesses.
These testimonies have been released on February 5th, 2018.
J. Christopher Giancarlo, the chairman, and witness of the CFTC displayed optimism in his testimony for Blockchain/DLT, devoting a page and a half to the numerous ways financial institutions, charities, social services, agriculture, and logistics can all benefit from it. Giancarlo seemed very bullish on permitting more freedoms for DLT, even comparing it to the internet:
“This is a simple approach which is well-organized as the enlightened regulatory underpinning of the Internet which brought about such profound changes to human society. During the almost 20 years of “do not harm” regulation, a massive amount of investment was made in the infrastructure of the Internet. It also yielded a rapid expansion in access which encouraged swift deployment, as well as the mass adoption of Internet-based technologies. The Internet-based innovations have revolutionized nearly every aspect of American life, from telecommunications to commerce, transportation and research and development. “[Do] no harm” was unquestionably the right approach to the development of the Internet. Similarly, we believe that “no harm” is the right overarching approach for distributed ledger technology.”
Despite his optimism, the chairman also stated that digital currencies would “likely want more attentive regulatory oversight” in views to “fraud and manipulation.” But, in his conclusion, he said that the SEC and CFTC have to do their best to leave some space for growth.”
“As we noticed with the development of the Internet, we cannot put the technology genie back in the initial position. The virtual currencies mark a paradigm shift in how we think about payments, as well as traditional financial processes and involved in economic activity. Ignoring these developments are not going to make them go away, nor is it a responsible regulatory response.”
Jay Clayton, who is the chairman of the SEC, was a little less excited about virtual currencies, but he was also not denying their role in a modern financial ecosystem. He says:
“To be clear, I am very optimistic that developments in financial technology will help facilitate capital formation, providing some promising investment opportunities for institutional and Main Street investors alike. From a financial regulatory perspective, these developments may also enable us to better monitor transactions, as well as holdings and obligations which include credit exposures and some other activities and characteristics of our markets, thereby facilitating our regulatory mission, which includes investor protection importantly.”
But, he also revealed that there still lay many traps:
“At the same time, no matter of the promise of this technology, those that invest their hard-earned money in opportunities which fall within the scope of the federal securities laws, desire the full protections afforded under those laws. This ever-present need also comes into focus when enthusiasm for obtaining a valuable piece of new technology “before it is too late” is strong and broad. Fraudsters, as well as some other bad actors, prey on this enthusiasm.”
While Giancarlo mentions the word “ICO” once in his testimony, Clayton mentions it about 132 times.
One recent study has found that 10% of all ICO proceeds have been lost to hacks and fraud, and Clayton fears that a lot of uneducated investors are losing a lot of money. He even moved on to promote Facebook’s recent ICO advertising ban:
“I don’t want to recognize that the recent social media platforms have limited the capacity of users to support ICOs and cryptocurrencies on their platforms. I appreciate the rational step.”
Clayton continues to praise the innovations of DLT or Distributed Ledger Technology, which is better known as “Blockchain,” but hope to create some boundaries for ICOs too.
“Simply said, we should probably embrace the pursuit of technological advancement, as well as new and innovative techniques for capital raising but not at the expense of the principles that are undermining our well-founded and proven approach to protecting investors and markets too.”
The general stance
Clayton has also mentioned that he and Giancarlo have “built a strong relationship.” Also, they are willing to work together to come up with a robust regulatory framework.
In the simplest of terms, there also seems to be a gradient which starts at ICOs, to virtual currencies, and then to DLT.
DLT needs the least regulation, and in fact, both SEC and CTFC seem to encourage anyone that is willing to expand on it.
ICOs are on the other side, and they require the most regulation, and virtual currencies are in the middle, needing some protection against fraud and market manipulation.
The testimony of today.
The hearing of today was refreshing in the sense that both Chairman Giancarlo and Chairman Clayton remained excited about the power of the decentralized technology and cryptocurrencies throughout the hearing.
Clayton broke it down into three categories, such as DLT (distributed ledger technology), cryptocurrencies, and ICOs. As it has been stated in the pre-testimonies, the CTFC was interested in permitting growth for DLT and cryptocurrencies, while keeping a careful eye on fraudsters in ICOs.
Giancarlo was also very bullish in his sentiments towards cryptocurrency. In his opening statement, he explained that “we owe it to this generation to respect this generations’ interest in cryptocurrencies, as well as punish those that persecute.”
He also talked about how excited his children were in the Bitcoin world, and it was interesting to see them so interested in finance.
He also mentioned that Lab CFC: the CFTC’s organization to educate Main Street on cryptocurrencies. Giancarlo stressed that education was also the most important rout to take when overseeing cryptocurrencies; the CFTC has never conducted as much educational outreach as they have in this area.
Senator Crapo mentioned that neither agency has complete jurisdiction over cryptocurrency and ICOs.
Both Giancarlo and Clayton agreed that they “may need some additional authorities to regulate,” but before they can agree that they have to learn more about the crypto space.
Clayton also briefly touched on the issue that the SEC does not have enough money to hire more people.
When Senator Cotton asked Giancarlo about the value of Bitcoin, he replied: “If there were no Bitcoin, there would also be no DLT.”
Clayton and Giancarlo both know that cryptocurrencies are significant for the development of DLT, and also want to see the growth of the technology without getting anyone hurt in the process.
Giancarlo also said that the floor of Bitcoin could not be zero. This is because the value of Bitcoin is “tied to mining.”
There was not much talk at all about the regulation of tax. Both of them also admitted that they have no jurisdiction over nation-states, like Venezuela, using cryptocurrencies to avoid sanctions.
Clayton also mentioned that while ETFs in Bitcoin is currently not ready, but that “there will be room in the future.”
Lastly, the Senator Warren asked Clayton how they can make ICOs safer. Clayton responded that many of the ICOs are violating existing laws and that the ICOs “should pay more attention,” as the SEC is going to be investigating these violations further.
According to both Giancarlo and Clayton, the best solution would be:
- Educate the masses about Bitcoin and cryptocurrencies;
- Use the jurisdiction which they have over the futures markets of Bitcoin to collect data, as well as keep track of the markets so that nobody gets to hurt;
- You should use taskforce to go after “fraudsters” that are scamming Main Street investors in ICO pyramid schemes, as well as worthless cryptocurrencies.
In summary, the cryptocurrencies will permit growth for the United States the same way that the internet did.
The United States should also be a leader in this aspect, as well as ensure that nobody will get hurt in the process. All of the Crypto HODL’ers agree that the news was also very bullish.
On a side note, Giancarlo also thinks that “HODL” is an acronym for “Hold On for Dear Life.”