In testimonies to Congress, the heads of the CFTC and SEC have given a surprisingly optimistic response to cryptocurrencies, though they warn that more regulation might be needed, particularly around exchanges. Markets responded favourably to the news, with prices up for the first time in nearly a week.
Christopher Giancarlo, the chair of the Commodity Futures Trading Commission (CFTC), opened his testimony by saying that despite years of trying he could never get his now college-aged children to take an interest in stocks. However, over the last year they had independently become excited about cryptocurrencies. Stating:
We owe it to this new generation to respect their enthusiasm about virtual currencies with a thoughtful and balanced response not a dismissive one.”
Though he added a warning that, “we must crack down hard on those who try to abuse their enthusiasm with fraud and manipulation.”
These remarks set the tone for his testimony. Optimistic about the potential for cryptocurrencies and careful about how to regulate them, combined with a desire to protect consumers and investors from bad actors. He likened the approach to the one taken during the development of the internet and said that, “I believe that ‘do no harm’ is the right overarching approach for distributed ledger technology.”
However, there is an awareness that there are still areas which either fall between existing regulations, or else go unregulated. The cryptocurrency “spot” markets and exchanges are in this category. Both Clayton and Giancarlo believe that new legislation may be needed to ensure that investors and traders are protected here.
According to Clayton, “When you have an unregulated exchange, the ability to manipulate prices goes up significantly,” explaining that, “Just a few coordinated sales can change the price.” When exchanges are regulated at all, they are regulated by requirements designed for other purposes. “The currently applicable regulatory framework for cryptocurrency trading was not designed with trading of the type we are witnessing in mind”, he said.
There may therefore be the need for Federal Authorities to draw up new legislation to cover exchange activity.
Having fallen below $6,000, the Bitcoin price responded well to the testimonies, rising over back up to over $8,000. At time of writing it is trading around $8,400.
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