Commodity Futures Trading Commission to meet regarding cryptocurrency
The U.S. Commodity Futures Trading Commission is scheduled to hold two meetings this month regarding the future of cryptocurrency derivatives trading.
“Undoubtedly, virtual currency and virtual currency derivatives present both significant opportunities and challenges,” Chairman J. Christopher Giancarlo said in a statement. “One thing is certain: ignoring virtual currency trading will not make it go away. Nor is it a responsible regulatory strategy.”
While expectations of the meetings are unknown, they will broadly tackle various issues pertaining to the use of cryptocurrencies, like bitcoin and Ethereum, as commodities. On Jan. 23, the Technology Advisory Committee will meet to discuss “the related challenges, opportunities, and market developments of virtual currencies.” On Jan. 31, the Market Risk Advisory Committee will meet “to consider the process of self-certification of new products.”
The commission also released a backgrounder for investors on virtual currency futures markets.
The meetings come on the heels of the CFTC’s December announcement allowing bitcoin futures trading for the first time. The commission’s press release from last month cautioned that allowing for futures trading “does not constitute a Commission endorsement of the use or value of virtual currency products or derivatives.”
In reaction to the decision to allow bitcoin futures trading, Walt Lukken, president of the Futures Industry Association, issued an open letter to Giancarlo, stating that “such developments have brought to light concerns with the process in which these novel products have come to market.” Specifically, Lukken criticized the one-day self-certification process, a standard in futures trading, as insufficient for public transparency and input when it comes to a volatile commodity like bitcoin.
In an interview with the ABA Journal, Joe Borg, director of the Alabama Securities Commission, says he does not have concerns that trading bitcoin futures exists, but “that the hype surrounding it will make people make irrational decisions.”
He thinks that bitcoin’s valuation looks a lot like the dot-com bubble of the late 1990s and early 2000s or “Tulip Mania,” denoting a moment in 17th century Netherlands where the price of tulip bulbs saw an extraordinary increase followed by a dramatic crash.
Borg, also the president of the North American Securities Administrators Association, put out a public warning on Thursday telling investors to “go beyond the headlines and hype to understand cryptocurrency investment risk.”
Within the release, Borg pointed to a survey of state and provincial securities regulators done by the NASAA that “shows 94 percent believe there is a ‘high risk of fraud’ involving cryptocurrencies.”
Securities and Exchange Commission Chairman Jay Clayton and two commissioners released a statement commending NASAA’s warnings. They add that cryptocurrencies, “lack many important characteristics of traditional currencies, including sovereign backing and responsibility.”
The SEC has increased its focus on cryptocurrencies and initial coin offerings, a cryptocurrency-based fundraising mechanism, through numerous public statements, investor warnings and legal actions against those allegedly out of compliance with securities law.
With cryptocurrencies still relatively new, especially to regulators, Borg says “we’re still trying to get a handle on it.”
However, with multiple state and federal agencies increasing their focus on cryptocurrency, he expects to build on the cross-agency interest seen this week.
“We’re going to be working together going forward,” he says.