CFTC says current thinking on crypto regulation inadequate
The former chair of the Commodity Futures Trading Commission (CFTC) and its current chief innovation officer told a Congressional committee hearing on Wednesday that cryptocurrencies were a bad fit in the existing financial regulatory framework.
A hearing of the US House of Agriculture Committee, chaired by Texas Representative Michael Conaway, heard testimony from six experts on cryptocurrencies and blockchain, including Gary Gensler – former chairman of the CFTC – and Daniel Gorfine – the CFTC’s CIO.
Regulatory framework inadequate
Regulatory issues were high on the agenda, given Gensler’s and Gorfine’s attendance, and the chief takeaway from their testimony was that the current US financial regulatory framework was not able to adequately define which rulemaking bodies were responsible for oversight of digital assets.
Also in attendance was law professor Joshua Fairfield, who agreed with Gensler that in a cryptocurrency’s lifetime it can be both a security and a commodity.
Digital tokens and ICOs
When a digital token is marketed for the purpose of raising funds for its development – an initial coin offering (ICO) – it must be classified an investment contract and, therefore, a security which should be regulated by the Securities and Exchange Commission (SEC).
Once digital tokens are used in a decentralized network as a transmission of value like a currency, however, they cease to be securities and become more like commodities, more relevant to the regulatory oversight of the CFTC.
Gensler, now a senior lecturer at MIT’s Sloan School of Management, said the regulatory state of crypto markets was “at best a wild west” and that the market required more authority and resources to clarify the regulatory framework or risk pushing a potentially lucrative and innovative market offshore.
Gorfine showed the rules were further complicated as the CFTC was not directly responsible for regulating commodities markets, rather the derivative products such as futures and options that are built around them.
Don’t be hasty to regulate
He said: “While some may seek the immediate establishment of bright lines, the reality is that hasty regulatory pronouncements are likely to miss the mark, have unintended consequences, or fail to capture important nuance regarding the structure of new products or models.”
He added, in agreement with Gensler, that a hasty and ill-considered approach to regulation of the crypto market could “impede the development of this area of innovation”.
Present at the hearing along with Gensler and Gorfine were:
- Joshua Fairfield, professor of law at Washington and Lee University School of Law
- Amber Baldet, co-founder and chief executive of blockchain developer Clovyr
- Scott Kupor, managing partner at venture capital firm Andreessen Horowitz
- Lowell Ness, managing partner, at law firm Perkins Coie