How much regulation is too much?
That’s what the U.S. Commodity Futures Trading Commission was trying to figure out during an hour-long meeting Friday of its Technology Advisory Committee. The panel was formed in February to “spur further discussion about how the CFTC, other regulators, spot platforms and market participants can all contribute to enhancing this market’s credibility and safety,” according to the opening remarks by Commissioner Brian Quintenz.
With the value of the global cryptocurrency market estimated at $700 billion earlier this year, the panel heard from speakers about the need for strong and “smart” regulation.
Richard Gorelick, a member of a TAC subcommittee created in February to study cryptocurrencies, said it was important to “get it (regulation) right” at this early phase. Gorelick added that “we want growth to occur by a, hopefully, responsible market in jurisdictions with appropriate safety and soundness guards.” Gorelick was founder and CEO of RGM Advisors, a trading firm acquired last year by DRW.
His way of regulating smartly is to encourage “industry-organized efforts to help fill some of these gaps.”
“They could be self-regulatory organizations or similar structures that help to define and enforce best practices and standards and accountability across the industry, and there are efforts underway to start thinking about and building these types of organizations,” he added, as quoted by CoinDesk. “There are lots of precedents in the traditional financial markets that we can look to for innovative governance structures that apply with markets that touch multiple jurisdictions.”
The CFTC oversees futures trading and swaps, and it has said in the past it can use some help to keep up with developments in blockchain technology. In response to growing interest in cryptocurrency and blockchain among investors, the agency created the Virtual Currencies Subcommittee and a second subcommittee on distributed ledgers, which also met Friday.
Asked if certain cryptocurrencies should be jointly regulated by the CFTC and the Federal Trade Commission, subcommittee member Gary DeWaal, a New York-based lawyer who specializes in financial regulatory issues, responded that “they should be binary, not joint.”
DeWaal, who is special counsel at the law firm Katten Muchin Rosenman, added: “There isn’t a mechanism for joint regulation yet. Either it’s a commodity defined under the Commodity Exchange Act, or it’s not.”
“One of the biggest misunderstandings about bitcoin is that it is anonymous,” said Stein, managing director at Two Sigma Investments. “Not only is it not anonymous, but law enforcement has been incredibly successful to use its pseudo-anonymity to apprehend people. The Achilles heel is not transactions on the blockchain because they can be tracked; it’s the unregulated world of exchanges” that may or may not be using anti-money laundering “know your customer” procedures.