New Rules? CFTC Chairman Open to Federal Regulation of Cryptos

To date, the United States has lacked a uniform regulatory framework towards cryptocurrencies. This differs strongly from other jurisdictions, many of which have taken more solidified stances towards these instruments. This could be changing however, as US securities regulators are now more open than ever to the prospect of increased compliance.

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The US has remained as one of the lesser active countries in addressing cryptocurrency regulation. By extension, countries such as China and India have both adopted more hard lined stances against cryptos.

New era of crypto regulation?

The groundwork towards regulating cryptocurrencies may have been laid last December when the US’ Securities and Exchange Commission (SEC) took legal action against a company holding a “scam” ICO for the first time when it filed charges against PlexCoin. Fortune reported that the PlexCoin ICO was “a blatant ripoff” that promised 13-fold returns for investors within a single month. Prior to the charges, the ICO had raised $15 million.

Fast-forwarding to the present, the US’ Commodity Futures Trading Commission (CFTC) is finally on the verge of charting a more concrete course on the federal regulation of cryptos. According to a recent testimonial by J. Christopher Giancarlo in a US Senate Banking discussion, the committee honed in on virtual currency regulation in depth.

More specifically, the committee recognized the potential for overblown hype, or outright ‘mania’, that could represent a bubble. Moreover, “The CFTC and SEC, along with other federal and state regulators and criminal authorities, will continue to work together to bring transparency and integrity to these markets and, importantly, to deter and prosecute fraud and abuse,” he explained.

“These markets are new, evolving and international. As such they require us to be nimble and forward-looking; coordinated with our state, federal and international colleagues; and engaged with important stakeholders, including Congress,” added Mr. Giancarlo.

However, it is important to note the regulatory limitations currently governing the debate on wider oversight. For example, in 2015, the CFTC determined that virtual currencies, such as Bitcoin, met the definition of “commodity” under the CEA. As such, the CFTC does not have regulatory jurisdiction under the CEA over markets or platforms conducting cash or “spot” transactions in virtual currencies or other commodities or over participants on such platforms.

That being said, the CFTC does have enforcement jurisdiction to investigate via subpoenas and other investigative powers and, as appropriate, conduct civil enforcement action against fraud and manipulation in virtual currency derivatives markets and in underlying virtual currency spot markets.

These parameters were clarified today in the latest committee meeting on cryptos, which can be accessed by the following link. Indeed, the CFTC certainly seems poised to now take a more active stance towards federal regulation of virtual currencies. What exactly this entails is still uncertain, though 2018 could see a more unified agenda on the subject.

Up until now, each state has harbored different opinions on the matter, with some expressing more embrace towards crypto regulation than others. However, an overarching federal regulation would be a different matter entirely, with the framework for such measures possibly being drawn up in the near future.