It is a rare day indeed when not only one, but two, senior regulatory officials actually speak out publicly in very supportive tones regarding cryptocurrencies. Remarkably enough, it happened at the recent MIT Bitcoin Expo 2019 held last week in Boston. The Commissioner of the US Securities and Exchange Commission (SEC) Hester M. Peirce, a.k.a., “Crypto Mom”, and a former Commodity Futures Trading Commission (CFTC) chairman, Gary Gensler, went back-to-back speaking favorably about all things crypto.
Gensler spoke first and wanted to see a more robust and unified approach to regulating cryptocurrencies, including any trading platforms that list tokens and complex investment instruments, along with those that focus purely on commodities. Per one report: “Gensler arguments were in favour of extending regulation on a national level but over a broader spectrum of crypto trading centered on improving investor protection, coordinating money laundering prevention and addressing the current regulatory and enforcement discrepancies across the different states.”
Peirce’s comments dovetailed with Gensler’s point of view. She noted that crypto exchanges are already in a “quasi” regulatory state, since they must conform with existing money transfer statutes already on the books. The Bank Secrecy Act is very specific in its requirements, which crypto firms must adhere to now and until a new regulatory framework is produced. She reiterated: “That’s the regulatory model we’ve chosen. I think, again, these markets could regulate themselves if we lived in a world where we allowed that.”
Peirce went on to add: “One really important thing to remember is that people regulate each other in their interactions with one another, and that’s the whole purpose of the Bitcoin idea, that it would be a community that would be able to regulate itself. As problems arise, people in that community are thinking about how to deal with those problems. One model would be to have a government regulator, but I don’t think that’s the only model.”
As for the regulatory discipline that would be appropriate, she espoused a lighter touch, except in the case where an anticipated token issuance was really a security offering. Strict registration and disclosure rules would still apply. The SEC has been cracking down on what it perceives as illegal security offerings by promoters of Initial Coin Offerings (ICOs). Fundraisers, as a result, have often moved offshore to more acceptable jurisdictions or modified their approach to become what have been called “Security Token Offerings” or “STOs”.
Ms. Peirce then surprised her audience by noting that she felt the SEC had made an error when it rejected the second application for a Bitcoin ETF submitted by the Winklevoss brothers. Her particular insights were encouraging: “When [the SEC] said no to this particular application, I thought the SEC went beyond our statutory authority. I thought we should have allowed this to trade.”
Bitcoin enthusiasts have longed for the approval of a Bitcoin ETF by the SEC, as an event that could open the floodgates for public awareness and acceptance of cryptos. The SEC, however, has rejected over a dozen applications, citing price volatility, the potential for price manipulation, and the lack of adequate monitoring safeguards. Futures markets in Bitcoin are also in their infancy, but the Bakkt and ErisX exchanges, soon to be operational, could significantly change current infrastructure shortcomings.