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Yesterday, at an industry conference, the Securities and Exchange Commission chairman Gary Gensler said that he looked forward to working with legislators on Capitol Hill to move ahead with plans to give the Commodity Futures Trading Commission additional oversight powers over cryptocurrencies.
Gensler noted that in order to regulate the market, the commission would need to be given additional authority.
He was quick to add that any additional oversight shouldn’t take away authority from his own SEC. Because the CFTC is only authorized to oversee derivatives, Congress would need to change the law to allow the CFTC to regulate cash markets for certain digital assets.
The digital assets industry, realizing that regulation was imminent, moved by and large from advocating against any regulation toward supporting commonsense oversight by the CFTC rather than the SEC. The SEC maintains that other cryptocurrencies are securities, however, and should be regulated as such.
If we accept that, given Gensler’s green light, Bitcoin and Ethereum will eventually become part of the CFTC’s bailiwick, questions still abound.
For instance, will there be a bright line rule that delineates whether or not a digital asset will be treated as a security? What the industry needs is a rulebook so that all the players understand the expectations. Beyond the digital assets themselves, what will happen to the exchanges?
Arguably it is exchanges and custodians, rather than cryptocurrencies themselves, which require the most urgent regulation. For example, a regulator is desperately needed to ensure that digital asset exchanges comply with KYC and AML expectations.
A regulator needs to decide what kinds of, if any, further information that exchanges should gather to eliminate money laundering and the financing of terrorism, along with other illicit substances.
Beyond just financial regulations, there are questions about technological regulation. Will regulators take a stance on exchange hacking? Right now, we’re seeing nine-figure hacks far more often than the industry can sustain long-term.
With the rise of cybercrime coming from hacking groups backed by nation-states like North Korea, exchanges are seeing additional action. Open-source coding allows hackers nearly unlimited opportunities to find flaws in an exchange’s technology stack.
Will regulators take a position on how exchanges, in addition to custodians, must prepare security defenses?
These are questions which will still exist, regardless of whether the SEC or the CFTC become the ultimate authority over Bitcoin. So, what does Gensler’s statement do for us today?
I think there are a couple things here. First, it implies that a deal on the regulation of Bitcoin should be a win in the short-term. Sometimes, small wins are the catalyst for major change.
Second, it offers a sneak peek at what Gensler and the SEC are thinking. They’re willing to give up at least some oversight in this arena, which some crypto enthusiasts will take as a win.
Richard Gardner is the CEO of Modulus. He has been a globally recognized subject matter expert for more than two decades, offering complex insight and analysis on cryptocurrency, cybersecurity, financial technology, surveillance technology, blockchain technologies and general management best practices.
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