The experience of federal-level cryptocurrency regulation in the United States is remarkable in that it is largely a model for other countries and reveals the mechanics of what is actually happening. After all, the decisive role in the administration of this market belongs to the central government, even in the U.S., where some states, such as Wyoming, allow themselves to take broader steps towards accepting the crypto market than other American regions. DeCenter figured out what the CFTC and SEC are cooking in the current regulatory pan.
Revelations of the CFTC Commissioner
On February 12, speaking at a discussion panel at the bipartisan policy center in Washington, Brian Quintenz, Commissioner of the Commodity Futures Trading Commission (CFTC), accused colleagues from the Securities and Exchange Commission (SEC) of not approving cryptocurrency exchange-traded fund (ETF) proposals under false pretenses. It is curious that on his official Twitter page, Quintenz has not yet posted a link to the video, which indicates that he most likely “said a bit too much.”
Meanwhile, there is an undeniable truth in his words. In his opinion, the argument that a potential manipulation of cryptocurrency prices could supposedly arise when launching Bitcoin ETFs is not serious, and at the same time, the SEC repeatedly resorted to this argument when, for example, it rejected the application for Bitcoin ETFs received from the Winklevoss brothers. Quintenz emphasizes that absolutely any existing investment asset may become an object of price manipulations, but this does not imply the need not to allow transactions with it or the launch of derivatives on its basis.
In addition, it is the derivatives that allow not to directly trade in cryptocurrencies but to tie the terms of contract execution, for example, to the market index for traded assets, and reduce the dependence of the market on those who would like to “loosen” it in price terms. That is why the CFTC approved Bitcoin futures, since the price of an asset, under which such a futures contract is executed, is determined “through a system of weighted average prices with a step of their change within five minutes. In total, the monitoring period is an entire hour with tracking the dynamics of asset prices that are observed on a large number of cryptocurrency platforms.” As noted by Quintenz, “even if someone tries to carry out a coordinated manipulation of prices for any cryptocurrency, it will immediately be noticed by us; therefore, it eliminates the possibility of taking such steps unnoticed.”
Hester Peirce of the SEC Intensified the Criticism of Her Department
This is not to say that the SEC does not have those who do not understand that the department is engaged in a “witch hunt” in general when it arbitrarily decides which cryptocurrencies are securities and which are not, and also when it invents pretexts to prevent Bitcoin ETF. All this is noticed by SEC Commissioner Hester Peirce. Speaking on the same discussion panel, she stated another ridiculous trick her colleagues in the department resorted to in developing a generally negative and suspicious view of cryptocurrencies: “It is said that the Bitcoin market is not sufficiently regulated. We all know, however, that there are many segments of the financial market with no clear rules, and this does not prevent them from having investment products.” Peirce is consistent, as in July she stated that the SEC “stepped beyond [its] limited role” when it rejected another application for Bitcoin ETF. On February 11, the SEC Commissioner, speaking at the University of Missouri School of Law, said that the department where she works has a prejudice against cryptocurrency and “at times we seem to be equally impulsive in running away from anything labeled crypto.”
In Russia, the Issue of Regulation of Blockchain and Cryptocurrencies Is “Being Talked Out”
Curiously, similar things can be traced, for example, in Russia. As Anatoly Aksakov, the head of the State Duma Financial Market Committee, admitted on February 18 of this year, “there is already a feeling that this issue is being talked out,” meaning building the legal infrastructure for blockchain and cryptocurrencies. Indeed, even before July 1, 2018, Russian President Vladimir Putin instructed the Central Bank of the Russian Federation and the government to ensure that all necessary legislative initiatives were taken to describe the rules for working with new financial technologies, including blockchain and cryptocurrencies. Although in January, Prime Minister Dmitry Medvedev said that this issue was important for the state, the State Duma, nevertheless, will not have time to consider the corresponding package of bills in the second reading in February, and will only begin in March.
Hester Peirce says that “we also owe it to them not to define their investment universe with our preferences,” but these words were not heard. Stephen D’Antuono, head of the FBI’s financial crimes department, explicitly states that promises of “too good” income for an ICO should raise doubts. But if you can still discuss the promise, you cannot agree that “like any investment product, rates of return can never be guaranteed and if it sounds too good to be true, it probably is” means, in fact, that the FBI does not understand that Bitcoin and a considerable number of other crypto coins proved that they could give such a return on investments, when investing in them for 5 to 7 years—something that is impossible when working with any other investment assets.
The SEC Is Fighting Automatic Bitcoin ETF Recognition
What Peirce says about the SEC is a frank admission of what is really happening in this department. Although analyst Brian Kelly believes that there is still no Bitcoin ETF launch as the SEC “still has a lot to sort out,” and this year will not be enough for this. But Kelly is naive. It is indicative that on February 12, SEC officials convinced one of the applicants on Bitcoin ETF to withdraw their application only because it contained an appeal to the Investment Organizations Act of 1940. The lawyers of the department found out that, in accordance with this legislation, Bitcoin ETFs should appear automatically after two and a half months, a turn of events, which the officials are not satisfied with.
CFTC: Regulate Thyself
Speaking of the SEC, one cannot say that the CFTC is fully ready to fulfill its functions. The position of the department, according to which it refuses to fully regulate the cryptocurrency market, contributes to its chaotic state, says the letter sent to the CFTC by the ErisX crypto exchange about the launch of Ethereum futures.
The interaction of ErisX with the CFTC also revealed that the agency did not fully understand how Ethereum works and therefore considers it impossible to give the “good to go” for futures on this cryptocurrency so far. All this cannot but be connected with the fact that another department, the SEC, refuses to recognize as official the statements of its representatives that Ether, like Bitcoin, is not recognized as a security. In addition, the desire of such a controversial cryptocurrency community figure as Craig Wright to swear under oath that he is Satoshi Nakamoto, the founder of Bitcoin, which he reported to CFTC on February 15, says that Wright is sure that government officials are very poorly versed in cryptocurrencies. Well, it is quite possible: after all, it is worth noting that on October 2, 2018, Christopher Giancarlo, the head of the CFTC, said that the phenomenon of cryptocurrencies was not a phenomenon that would have caused the United States to worry about its leadership. He assured that the agency could continue to study this issue.
More than four months have passed, but no noticeable progress has yet been seen. Brian Quintenz of the CFTC also made it clear that there is no hope that the regulators will explain everything. The Commissioner said that since the department lacks the capacity to start fully regulating the cryptocurrency market, everything must be left to chance, namely, that “cryptocurrency trading platforms should unite and create something like a self-regulating organization, where they could agree on some rules of conduct, as well as audit and generally do all the necessary work on the administration of this sector.” Thus, from the lack of understanding of the phenomenon of cryptocurrencies on the part of the CFTC, we see the transition of officials to the realization of the inevitability of progress, hence the criticism from Quintenz of the irrational attempts of the SEC to hinder new technologies.
Like CFTC, Like SEC: What Awaits Them?
The CFTC is eventually becoming the structure that will increasingly deal with a diminishing scope of activity in the field of classic commodity futures when asset tokenization becomes a new trend. Traditional investment assets may end up being too overwhelmed by the problems that have accumulated in the modern financial system of the world. These assets are a thing of the past, as Jason Williams, the main founder of Morgan Creek Capital, is saying.
And it is not just that cryptocurrencies are a more appropriate alternative, although, in terms of return on investment, digital assets are out of the competition. “I think regulations, bad incentive systems, and political pressure are bigger culprits. Just my thoughts. Totally friendly,” as VanEck’s Digital Assets director Gabor Gurbacs writes. Most of all, these things lead to the rebooting of the global economic system using blockchain and cryptocurrencies, which is becoming inevitable.