At a hearing later today before the U.S. House Committee on Banking, Housing and Urban Affairs, U.S. Securities and Exchange Commission (SEC) Chair Jay Clayton will discuss his agency’s role in regulating (or not) markets for cryptocurrencies like bitcoin and the hundreds of others that have sprung up, mostly over the past year. Commodities Futures Trading Commission (CFTC) Chair J. Christopher Giancarlo will testify on the same subject before the Senate Banking Committee.
Monday’s massive decline in the U.S. equities markets was reflected in the spot market for bitcoin, which hit a year-to-date low below $7,000 Monday on the Coindesk exchange. As a whole, cryptocurrencies have dropped about $500 billion in value since the beginning of the year.
In a joint statement issued late last month, Clayton and Giancarlo wrote:
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. 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.
Cryptocurrencies are currently regulated on a state-by-state basis and neither the SEC nor the CFTC has the authority to oversee the state regulatory process. The CFTC in 2015 declared virtual currencies to be a commodity and claims investigatory power, including the authority to subpoena exchange operators. However, the CFTC primarily concerns itself with professional commodity traders trading on spot exchanges, not small retail investors who are the most likely targets of fraudulent cryptocurrency offers.
The SEC’s authority to regulate cryptocurrencies may be even more limited. In his prepared testimony before the House committee Clayton noted:
For those who seek to raise capital to fund an enterprise, as many in the ICO space have sought to do, a primary entry into the SEC’s jurisdiction is the offer and sale of securities, as set forth in the Securities Act of 1933. … [D]etermining what falls within the ambit of a securities offer and sale is a facts-and-circumstances analysis, utilizing a principles-based framework that has served American companies and American investors well through periods of innovation and change for over 80 years.
Congress probably will have to act in order to give either the CFTC or the SEC or some combination of both the authority to regulate cryptocurrency issuances and markets. When that might happen is anyone’s guess.