Cryptocurrency exchanges roiled by the rout in Bitcoin prices may face more turbulence as the two top U.S. market regulators ask Congress to consider federal oversight for the trading platforms.
Commodity Futures Trading Commission Chairman J. Christopher Giancarlo and Securities and Exchange Commission Chairman Jay Clayton will call attention to potentially dangerous gaps in rules for trading digital currencies when they appear together Tuesday at a Senate Banking Committee hearing, according to copies of their testimony obtained by Bloomberg News.
To the extent that virtual currency exchanges are regulated at all in the U.S., they are governed by state rules designed for money transmission services. Authorities have become increasingly concerned in light of recent events such as the admission by a Japanese exchange that it had been robbed of more than $500 million in digital tokens.
“The currently applicable regulatory framework for cryptocurrency trading was not designed with trading of the type we are witnessing in mind,” Clayton said in his prepared remarks. “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.”
Giancarlo and Clayton, Trump administration appointees who took office with mandates to dial back regulation, are trying to balance a desire to promote the kind of innovation that blockchain technology represents against the need to protect investors. At Tuesday’s hearing on virtual currency oversight, they will aim to assure lawmakers that they’re doing both.
The SEC has been focused on so-called initial coin offerings, which Clayton has said are often securities offerings that should be registered with his agency. To date, none have completed that process, Clayton said in his statement.
The CFTC identified Bitcoin as a commodity in 2015 and has used its anti-fraud authority to bring enforcement cases against platforms offering Bitcoin trading. The agency is also charged with overseeing Bitcoin futures contracts after two exchanges brought them to market last year.
In his statement, Giancarlo said the CFTC’s authority is largely limited to derivatives markets. He noted that spot market exchanges, where much of the trading occurs, doesn’t fall under any federal regulators’ jurisdiction.
“Current law does not provide any U.S. federal regulator with such regulatory oversight authority over spot virtual currency platforms,” he said.