On Tuesday morning Securities and Exchange Commission (SEC) chairman Jay Clayton will testify before congress on the regulatory future of Bitcoin and other digital coins, intensifying the world’s focus on the technology as its value plummeted on Monday.
According to Clayton’s prepared comments, released on Monday afternoon, the SEC will tell the Senate Committee on Banking, Housing, and Urban Affairs that the federal regulator is open to “exploring” regulations for cryptocurrency exchanges—where digital coins are bought and sold—with Congress. “We also are supportive of regulatory and policy efforts to bring clarity and fairness to this space,” Clayton’s prepared testimony reads.
I must also note that Clayton’s testimony begins with the line, “Chairman Crapo, Ranking Member Brown,” and that Chairman Mike Crapo and Ranking Member Sherrod Brown are both very real lawmakers in the US Senate.
Crucially, Clayton noted that many exchanges opt to be regulated as money-transmission services, which puts them under the purview of state regulators, but investors need federal protections. “In short, the currently applicable regulatory framework for cryptocurrency trading was not designed with trading of the type we are witnessing in mind,” Clayton’s comments read.
Clayton’s testimony comes at a pivotal time for cryptocurrency regulation globally. China has already banned domestic exchanges, and People’s Bank of China-affiliated news site Financial Times reported on Monday that the state will also seek to ban foreign exchanges, effectively putting the kibosh on exchange trading in China. Meanwhile, another huge market for cryptocurrencies—South Korea—recently announced that citizens will be required to trade cryptocurrencies using accounts associated with their bank.
It’s important to note that regulation is not necessarily a bad thing. Clarity is desperately needed around taxation for Bitcoin, for example. Cryptocurrency think tank Coin Center also recently published a report laying out how a unified federal approach to regulation might solve some of the problems inherent in a state-by-state solution.
Clayton also seemed to favour Facebook’s recent announcement that it will be banning all cryptocurrency-related ads on its platform for the time being. “I do want to recognize that recently social media platforms have restricted the ability of users to promote [Initial Coin Offerings] and cryptocurrencies on their platforms,” Clayton’s testimony reads. “I appreciate the responsible step."
The majority of Clayton’s ire in his testimony will be reserved for Initial Coin Offerings (ICOs), fundraising events wherein investors buy digital tokens from a startup. In some cases, these cryptocurrency crowdsales have been revealed to be outright frauds, and malicious hacking during crowdsales is endemic.
“I have asked the SEC’s Division of Enforcement to continue to police these markets vigorously and recommend enforcement actions against those who conduct ICOs or engage in other actions relating to cryptocurrencies in violation of the federal securities laws,” Clayton’s testimony says.
Importantly, Clayton also noted that while many ICOs are now advertising their wares as “utility” tokens (the argument being that they are not securities because they have some functionality like imparting voting rights), nobody is safe from a potential crackdown. To date, ICOs have in fact “largely been” securities, Clayton’s testimony reads, yet “to date no ICOs have been registered with the SEC.”
Chairman J. Christopher Gianciarlo of the US Commodity Futures Trading Commission will also be testifying Tuesday morning, and his comments are viewable here.
All in all, it seems like tomorrow’s hearing will see a lot of talk about regulation and how regulators and lawmakers can work together to make that happen. All that’s left is the question period.
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