Can Regulating Cryptocurrency Be a Good Thing?

Can Regulating Cryptocurrency Be a Good Thing?

As cryptocurrency has grown in prominence, acceptance, functionality, and value, public figures have grappled with ways to regulate it. There are a myriad of logistical challenges in overseeing a new financial system predicated on anonymity, and that’s before taking into account crypto investors’ concerns that regulation would cripple, or even destroy, vital elements of the currency and impede its ability to grow.

Nevertheless, talks broaching the regulatory subject have heated up. The US Treasury held a hearing on Tuesday to discuss the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission’s (CFTC) roles in overseeing cryptocurrency markets in the US, and prominent international figures, including US Treasury Secretary Steven Mnuchin and French Finance Minister Bruno Le Maire, have called for talks about cryptocurrency regulation during March’s G20 summit in Argentina.

Mnuchin and Le Maire have different, but standard, fears about cryptocurrencies. Mnuchin’s main concern is the potential for them to be misused or abused, particularly through illegal activity, like money laundering. Critically, however, he has stated that he does not believe they threaten financial market stability. Le Maire, on the other hand, is mainly worried about the risks associated with market speculation.

These are not the first conversations regarding concerns and potential cryptocurrency regulations in the US or at a global conference, but they are surely a sign of cryptocurrency’s burgeoning importance on an international level. With regulation looking like an inevitability, it is worth asking – what would cryptocurrency regulation look like? And, is there a chance regulation could actually be a good thing?

The Significance and Takeaways of the Senate Hearings (February 6, 2018)

On February 6, the Senate Banking Committee saw SEC Chairman Jay Clayton and CFTC Chairman Christopher Giancarlo expound on near-term cryptocurrency regulation plans in the US. The two offered testimony on what can and should be regulated, as well as the logistics of doing so, and presented their thoughts on the future of blockchain and cryptocurrency markets. 

The conversation outlined three main pillars of the cryptocurrency economy – cryptocurrencies as “a replacement for dollars;” ICOs (Initial Coin Offering) as “like a stock offering;” and distributed ledger technologies, or blockchain. Giancarlo expressed curiosity and enthusiasm about the potential of the emerging market, while Clayton’s tone was more solemn as he detailed his concerns about ICO fraud and protecting ‘Main Street’ investors.

Conversations are far from finished, but these initial talks should assuage fears that future regulation efforts will seek to impede growth. Both chairmen expressed their desire to regulate cryptocurrency exchanges as part of a broader effort focused on protecting and educating investors, who may assume cryptocurrency markets are regulated like traditional ones. Clayton proposed an interagency plan between the SEC, CFTC, states, and federal regulators to teach consumers about unregulated trading platforms. Giancarlo clarified that the CFTC cannot require protections that consumers would expect from customary securities exchanges, but that Bitcoin futures markets now allow the CFTC to analyze trading data for fraud and manipulation. And even Senator Mark Warner, whose calls for better-coordinated regulation efforts were met with agreement from both chairmen, expressed a positive vision for the future: “The potential writ large amongst crypto assets and the underlying blockchain could be as transformational as wireless was years ago,” said Warner.

The emphasis on protecting consumers from fraudulent and dangerous activity, as well as the generally positive tone of the meetings, should be music to the ears of cryptocurrency investors, who were largely expecting more bad news in a difficult week. Signs appear positive for the ongoing viability of virtual currencies in a regulated world.

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