Christopher Giancarlo and Jay Clayton, chairmen of two key financial regulation commissions in the US, testified about virtual currencies before a Senate committee.
Christopher Giancarlo, Chairman of the U.S. Commodity Futures Trading Commission (CFTC), an independent agency of the US government that regulates futures and option markets, and Jay Clayton, Chairman of the U.S. Securities and Exchange Commission (SEC), which regulates the securities industry and the nation’s stock and options exchange, testified before The Senate Banking, Housing and Urban Affairs Committee on 6th February.
The hearing was “on the growing world of virtual currencies and the oversight conducted by their two agencies.” The hearing was largely positive with the testimonies from the two men receiving praise for their honest and fair discussion of virtual currencies, especially in light of past disregard or outright rejection of virtual currencies by governments.
Senator Mike Crapo, who chairs the Senate Banking, Housing and Urban Affairs Committee, voiced the importance of such a hearing in light of recent events to begin the hearing:
“Virtual currencies are meant to act as a type of money that can be traded on online exchanges for conventional currencies such as dollars, or used to purchase goods or services predominantly online. Additionally, developers, businesses and individuals are selling virtual coins or tokens through initial coin offerings, also known as ICOs, to raise capital. For the last year, many Americans have been increasingly interested in virtual currencies especially given the meteoric rise in valuation and recent fall of Bitcoin.”
He also mentioned the recent poor press cryptocurrencies have received following the CoinCheck exchange hack, regulatory actions by the aforementioned commissions, and further concerns raised by these and other agencies about the risks associated with cryptocurrencies.
One of the high points of the hearing came when Senator Crapo said of cryptocurrencies that “the technology innovation and ideas that underlie these markets present significant positive potential,” referring to blockchain technology. Such high-level government praise of cryptocurrency is almost unheard of in an industry that so threatens the banking industry upon which so much of government depends.
The hearing saw something of a division between Clayton and Giancarlo, with the former offering a cautious and traditional view on the role of virtual currencies in the modern world and their regulation, while the latter could almost have been plucked straight out of a Bitcointalk page in his praise of the cryptocurrency. Both offered their opinions on what can and should be regulated within the cryptocurrency ecosystem, making a distinction between cryptocurrencies as a means of transaction, ICOs as as means of generating capital, and blockchain technologies.
They disagreed on a number of issues, namely the intrinsic value of cryptocurrencies and the problem of their volatility in its role as a currency, but agreed on the benefits of a Bitcoin futures market in providing “visibility into underlying markets”, allowing them to “analyze it for fraud and manipulation”, and the need for regulation of cryptocurrency exchange platforms.
Giancarlo clarified that “the CFTC does not regulate the dozens of virtual currency trading platforms here and abroad”, and called for an interagency co-ordinated plan among states, federal regulators and the SEC and CFTC to address consumer naivety over unregulated trading platforms.
The status of ICO tokens as a financial instrument in the eyes of regulators was also clarified as Clayton explained:
“I believe every ICO I’ve seen is a security… You can call it a coin but if it functions as a security, it is a security… Those who engage in semantic gymnastics or elaborate restructuring exercises in an effort to avoid having a coin be a security are squarely in the crosshairs of our enforcement provision.”
– Charlie McCombie