by Gil Davis
On March 13, 2018, Congress’ committee on regulating digital currencies met to discuss the ever-growing and highly unregulated cryptocurrency environment. As a new market, it has had its share of hiccups which have concerned investors as well as the regulatory bodies overseeing such investments.
Nurturing a Fast Moving Target
Coinbase, one of the largest cryptocurrency on- and off-boarding sites, is known for regularly meeting with policymakers to testify on how the market is evolving. These conversations revolve around which measures should be enacted to ensure a healthy environment that fosters novel business ideas while simultaneously protecting all those involved.
In many ways, these new products and services growing out of the new crypto environment are highly beneficial to strengthening the economy. As such, Congress needs to be careful when regulating this to ensure that it’s potential isn’t cut short.
The following are excerpts from Coinbase’s written testimony to Congress, where they feel new regulations are not necessary to nascent financial space.
“A Comprehensive Federal Regulatory Regime Exists Today:
We believe there is no need for Congress to create a new regulator or a new regulatory scheme because federal regulators already have sufficient authority to regulate this space effectively. There are at least four federal regulatory agencies that can effectively protect investors and the markets:
- The SEC has authority over securities transactions;
- The CFTC has authority over spot markets in commodities for fraud and market manipulation, and it has full authority over commodity derivatives transactions;
- FinCEN has full authority for Know Your Customers (KYC) and Anti Money Laundering (AML) matters; and
- The Federal Trade Commission (“FTC”) has authority for false advertising and certain consumer protection.”
The opinion of Coinbase is that current regulatory agencies are perfectly fine for dealing with cryptocurrencies; there is nothing that isn’t already covered under current regulations.
However, a consensus among these agencies must occur as not to confuse investors and companies to allow burgeoning business ideas to stay within the US:
“Regulators Need to Provide Clear and Consistent Guidance:
Although regulatory coverage is deep and broad, it is not clear where one regulator’s authority ends and transitions to another. This leads to a lack of clarity for companies who must make decisions prospectively about which regime applies at what time to each asset. Much clarity would come from coordination amongst regulators on this issue. Instead, today’s environment calls to mind the parable of the blind mice and the elephant — each agency looks at tokens from its own narrow perspective:
- the SEC says these assets, particularly ICO’s, are probably securities;
- the CFTC says tokens are commodities, unless they are securities;
- the IRS says they are property;
- FinCEN says tokens are money; and
- other agencies see tokens through their own lens.”
The inconsistency between these agencies seems to be the real problem facing the crypto market, specifically when it comes to initial coin offerings (ICOs). This new funding platform has the potential to allow investors to get on the ground floor of startups without having connections in the traditional technology landscape of New York and Silicon Valley.
Still, to protect investors, these agencies must figure out how they will define and treat ICOs. A common theme running throughout Coinbase’s document is to find ways that allow the market to mature appropriately and give investors confidence without killing innovation via unnecessary regulations.
The US is in a great place to capture this market to the boon of anyone who wishes to invest which may lead to an entirely new form of investment that allows those outside of the bubble to get involved.
Benefits from this will have lasting impacts on the economy if allowed to grow here, but if other countries get ahead of the US government, the decentralized nature of cryptocurrencies can easily and quickly move elsewhere.