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Yesterday at an industry conference, Gary Gensler, chairman of the Securities and Exchange Commission, said he looked forward to working with lawmakers on Capitol Hill to push ahead with plans to give the Commodity Futures Trading Commission additional oversight powers over cryptocurrencies.
Gensler noted that to regulate the market, the committee should be given additional powers.
He was quick to add that additional oversight should not take away the authority of his own SEC. Since the CFTC is only empowered to oversee derivatives, Congress would need to change the law to allow the CFTC to regulate the money markets for certain digital assets.
Of course, it would also take a financial boost to achieve such a goal. Right now, the main driver behind allowing the CFTC to regulate Bitcoin and Ethereum is.
The digital asset industry, realizing that regulation was imminent, generally moved from advocating against any regulation toward supporting common sense oversight by the CFTC rather than the SEC. However, the SEC states that other cryptocurrencies are securities and should be regulated as such.
If we accept that Bitcoin and Ethereum, given the green light from Gensler, will eventually become part of the bailiwick of the CFTC, there are still many questions.
For example, will there be a clear rule as to whether or not a digital asset is treated as a security? What the industry needs is a rulebook so that all players understand expectations. What happens to the exchanges, besides the digital assets themselves?
Undoubtedly, it is exchanges and custodians, rather than cryptocurrencies themselves, that require the most urgent regulation. For example, a regulator is desperately needed to ensure digital asset exchanges meet KYC and AML expectations.
A regulatory body must decide what types of additional information the exchanges should collect to eliminate money laundering and terrorist financing, along with other illegal substances.
In addition to just financial regulation, there are questions about technological regulation. Will regulators take a stance on exchange hacking? Right now, we’re seeing a lot more nine-figure hacks than the industry can sustain in the long run.
With the rise of cybercrime coming from hacking groups backed by nation-states like North Korea, exchanges are seeing additional action. Open-source encryption gives hackers almost limitless opportunities to find flaws in an exchange’s technology stack.
Will regulators take a stance on how exchanges, in addition to custodians, should implement security measures?
These are questions that will still exist regardless of whether the SEC or the CFTC becomes the ultimate authority on Bitcoin. So, what does Gensler’s statement do for us today?
I think there are a few things here. First, it implies that a deal on the regulation of Bitcoin should be a win in the near term. Sometimes small victories are the catalyst for big change.
Second, it offers a taste of what Gensler and the SEC are thinking. They are willing to give up at least some oversight in this arena, which some crypto enthusiasts will consider a win.
Richard Gardner is the CEO of Modulus. A globally recognized subject matter expert for over two decades, he provides complex insights and analysis in the fields of cryptocurrency, cybersecurity, financial technology, surveillance technology, blockchain technologies, and general management best practices.
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