Former FDIC Chair: Don’t Ban Bitcoin, Regulate
Finance veteran and former Federal Deposit Insurance Corporation (FDIC) chair Sheila Bair warns governments against the urge to ban bitcoin. Instead, she calls for a more measured and long-term view of the cryptocurrency as an evolving asset that should be handled with caution and regulation.
The Eye of the Beholder
“The number of businesses and individuals recognizing Bitcoin as a medium of exchange is of sufficient scale to belie attempts to label it as worthless,” writes Bair in a December 2017 Yahoo Finance article she penned on the merits and pitfalls of the virtual currency. She reminds us that all currencies, including fiat, which is declared legal tender by a government, are vulnerable to changes in public confidence, stating that “value – like beauty – is in the eye of the beholder.”
Along with being the FDIC Chair from 2006 until 2011, Bair served as a Commissioner and Acting Chair of the Commodity Futures Trading Commission (CFTC) in the 1990s. She has been one of TIME Magazine’s 100 most influential people and currently advises numerous fintech companies and businesses. Bair has a personal stake in Bitcoin and blockchain technology; she is on the board of Paxos, a fintech company and blockchain settlement platform, as well as its itBit cryptocurrency trading services division (itBit and Paxos rebranded and branched in 2016).
Bair Calls for Regulations, Not Bans
While Bair does describe bitcoin’s grandiose rise and partial fall in 2017 as a “bubble,” she doesn’t think this means it should be outlawed, but rather subject to increased monitoring and administration.
For example, the itBit exchange Bair works with is regulated by a BitLicense; a regulatory framework for firms dealing in digital currency established by the New York Department of Financial Services (NYDFS). She upholds the BitLicense system as an example of the type of regulation that governments can use to protect investors. She characterizes a BitLicense’s provision of “bank-like supervision, including capital requirements, customer due diligence, and cyber-security oversight” as a positive step for Bitcoin. But, BitLicenses remain a much-debated topic because of the regulations they introduce and fees they charge cryptocurrency companies, which many sees as prohibitive to and incompatible with the peer-to-peer, distributed nature of the blockchain.
Bair also praises the Chicago Board Options Exchange (CBOE) and Chicago Mercantile Exchange (CME) for launching Bitcoin futures, saying that in so doing, they “created additional regulated venues” for the virtual currency.
Do Your Homework Before You Invest
Bair directs new investors to read Securities and Exchange Commission (SEC) Chairman Clayton’s December 2017 advisory statement on cryptocurrencies and initial coin offerings (ICOs) and echoes his message that anyone entering into these realms should educate themselves on the difference between cryptocurrencies and the many other uses of blockchain technology. “As with any asset, don’t invest more than you can afford to lose. And, do your homework before you do so,” she advises.
Congressional Hearings on Cryptocurrencies
In closing, Bair calls on the government and Congress, in particular, to provide additional oversight to prevent fraud, money laundering and the use of cryptocurrencies for illicit activities. In November 2017, the U.S. Senate Judiciary held a hearing about bill S.1241: Modernizing AML [anti-money laundering] Laws to Combat Money Laundering and Terrorist Financing. The bill, which was introduced to the Senate in May, would amend the U.S. definition of financial institution to include digital currencies and exchanges. As BTCManager reported in December, it would also apparently criminalize the concealed ownership of cryptocurrencies.