Bitcoin’s price slid to below $6,000 Tuesday amid febrile discussion between bankers and regulators over the uncertain future of the world’s most valuable cryptocurrency.
The head of the U.S. Securities and Exchange Commission is scheduled to give testimony to the Senate Banking Committee on cryptocurrencies later Tuesday.
In Europe, one high-profile banker slammed bitcoin Monday as a combination of “a bubble, a Ponzi scheme and an environmental disaster” that threatens the public’s trust in traditional banking systems.
“If authorities do not act pre-emptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability,” Agustín Carstens, the new head of the Bank for International Settlements, said during an adress in Germany.
Bitcoin’s fall from an all-time high of $20,000 in mid-December shows no sign of stopping. The wider cryptocurrency market has fallen in line with bitcoin, with more than half a trillion dollars wiped off the market capitalization of digital coins in less than a month.
Though the plunge in value is seen by many as a market correction following unprecedented gains in 2017, increased regulation around the world is also weighing on the bitcoin’s price.
SEC chair Jay Clayton Tuesday will address Congress to say his organization is not attempting to stifle the innovation associated with bitcoin and blockchain, but is attempting to make sure investors don’t get scammed.
"These warnings are not an effort to undermine the fostering of innovation through our capital markets — America was built on the ingenuity, vision and spirit of entrepreneurs who tackled old and new problems in new, innovative ways," Clayton said in prepared remarks uploaded to the Senate website on Monday evening.
But Clayton did warn about so-called “initial coin offerings” or ICOs, which many in the industry have warned are scams dressed up to look like investment vehicles.
Also giving testimony Tuesday will be J. Christopher Giancarlo, the head of the U.S. Commodity Futures Trading Commission (CFTC). He will advocate for a “do no harm” approach to regulating the nascent industry.
"'Do no harm' was unquestionably the right approach to development of the Internet. Similarly, I believe that 'do no harm' is the right overarching approach for distributed ledger technology.”
Cryptocurrency exchanges, like market leader Coinbase, are currently regulated as money-transmission services, meaning they fall outside the purview of both the SEC and the CFTC.
Despite Clayton’s upbeat outlook on cryptocurrencies, his organization last month dealt a blow to groups looking to launch exchange-traded funds (ETFs) based on digital coins.
“There are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors,” Dalia Blass, a director at the SEC, wrote in a letter to two trade groups.
Thanks to the surge of interest in cryptocurrencies in the last six months — based mostly on exponential price rises — numerous groups are seeking to launch funds tracking cryptocurrencies.
Cover image: Bitcoin is displayed in front of the Bitcoin course's graph of Coinbase cryptocurrency exchange website on February 2, 2018 in Paris, France. (Chesnot/Getty Images)