It's a terribly kept secret that the Crypto Markets have had a terrible sell off this month. As of today, Bitcoin is trading at $7700 which is about 61% below its high. One of the biggest sources is how much impending regulation could affect the crypto markets. It began with rumors concerning Korea shutting down exchanges to China banning cryptocurrency exchanges. The crypto markets were also worried about potential US regulation. Everyone was looking forward to this morning's meeting between the heads of the CFTC and the SEC and Congress.
SEC and CFTC heads are surprisingly optimistic on cryptocurrency. In short, they want to stomp out bad actors, monitor the growth, but allow the space to mature because it can drive tremendous positive change. The 2-hour session seemed to pit their optimism against the pessimism from Congress. The Chairman of the CFTC, J Christopher Giancarlo opened up the meeting with a personal story of how he has been trying to get his millennial children involved in the financial markets for years, with little success. Something changed last year with cryptocurrency. He has never seen this level of engagement by millennials into the markets which he believes should not be tempered. He advocates that regulators embrace cryptocurrency and focus on educating the public around cryptocurrencies versus trying to stop it. Here is a clip via Coincenter.
CFTC Chairman Giancarlo: “We owe it this new generation to respect their enthusiasm about virtual currencies with a thoughtful and balanced response, not a dismissive one.” pic.twitter.com/0v4M5gExfc
— Coin Center (@coincenter) February 6, 2018
SEC chairman Jay Clayton was not as enthusiastic but was overall positive on the impact of cryptocurrencies and blockchain. His issue lied with the rapidly growing ICO (Initial Coin Offering) market. In short, Clayton believes that companies and teams are using the ICO market to circumvent security laws. His goal is to protect mainstream investors. From his prepared notes:
"Many of these assertions that the federal securities laws do not apply to a particular ICO appear to elevate form over substance. The rise of these form-based arguments is a disturbing trend that deprives investors of mandatory protections that clearly are required as a result of the structure of the transaction. Merely calling a token a “utility” token or structuring it to provide some utility does not prevent the token from being a security. Tokens and offerings that incorporate features and marketing efforts that emphasize laws the potential for profits based on the entrepreneurial or managerial efforts of others continue to contain the hallmarks of a security under U.S. law. It is especially troubling when the promoters of these offerings emphasize the secondary market trading potential of these tokens, i.e., the ability to sell them on an exchange at a profit. In short, prospective purchasers are being sold on the potential for tokens to increase in value – with the ability to lock in those increases by reselling the tokens on a secondary market – or to otherwise profit from the tokens based on the efforts of others. These are key hallmarks of a security and a securities offering. "
In other words, stop doing an ICO and fronting like you aren't selling securities.
SEC Chairman Jay Clayton: "I want to go back to separating ICOs and cryptocurrencies. ICOs that are securities offerings, we should regulate them like we regulate securities offerings. End of story." pic.twitter.com/z1X2EyLxwx
— Coin Center (@coincenter) February 6, 2018
He also gave a shoutout to Facebook for banning the advertisement of crypto on their platform:
“I do want to recognize that recently social media platforms have restricted the ability of users to promote ICOs and cryptocurrencies on their platforms. I appreciate the responsible step.”
The members of Congress who questioned these two individuals seemed to want them to defend the value of cryptocurrencies and explain why it is so volatile. When Senator Tom Cotton asked about the underlying value of the Blockchain or Distributed Ledger Technology, Giancarlo responded:
"It is important to remember that if there were no bitcoin, there would be no distibuted ledger technology"
SEC Chairman Clayton pointed out areas of DLT applications in the spaces of data verification and record-keeping.
Overall this meeting was positive for the overall crypto space. The leaders of the two main financial regulatory bodies have a strong understanding of the crypto space and have a balanced outlook on it. The same cannot be said for members of Congress but Mr Giancarlo and Mr Clayton were able to manage their aggression well. After this session Bitcoin is up around 9%.