You might not have noticed, but U.S. financial regulators have been talking about cryptocurrency a lot lately, as Congress prepares to debate comprehensive legislation that would clarify who has authority over digital assets.
SEC working with CFTC
Last week, the Financial Times website reported that U.S. SEC Chairman Gary Gensler has been communicating with his counterparts at the Commodities Futures Trading Commission (CFTC), in order to promote security and transparency for investors who trade crypto assets.
The SEC has historically focused on securities such as stocks, and the CFTC on derivatives. Cryptocurrencies are a new animal with characteristics of both. Recent legislation introduced by Senators Cynthia Lummis (R-WY) and Kristen Gillibrand (D-NY) would classify digital assets primarily as commodities and grant additional regulatory powers to the CFTC.
Thus, Gensler’s recent moves suggest he sees the handwriting on the wall and is preparing for the day when the SEC and CFTC will be working together more closely. It could also be viewed as an attempt to make sure the FEC retains an ample slice of the crypto pie.
In the interview, Gensler revealed that his agency is drafting a MoU that requires the SEC to share information with the CFTC relating to crypto assets. The result would be a single “rule book” regulating all crypto asset trading, regardless of how they’re classified. These rules would seek to protect investors from market manipulation, fraud and front running.
Gensler also recommended that cryptocurrency projects register with the SEC, to protect investors in times of falling crypto asset prices, reiterating that having “one rule book” will help build the public trust needed for the crypto industry to move forward.
Senator Lummis stated when introducing the Responsible Financial Innovation Act, “The United States is the global financial leader… it is critical to integrate digital assets into existing law and to harness the efficiency and transparency of this asset class while addressing risk.”
Lummis added that the bill would provide regulatory clarity to agencies charged with supervising digital asset markets, by integrating digital assets into existing tax and banking laws.
Fed talks about CBDC again
A few days before the Gensler interview, Federal Reserve Chairman Jerome Powell testified before Congress, saying the Fed plans to provide recommendations to Congress for implementing a central bank digital currency (CBDC).
Powell told the House Committee on Financial Services hearing that “it's something we really need to explore as a country… it should not be a partisan thing.”
In January, the Fed issued a 40-page report on the question of a digital dollar but took no position on the issuance of a CBDC. Officials are still evaluating responses from the crypto industry, financial firms and investors. Powell said in March that the Fed wouldn't explore a CBDC launch without congressional approval.
Senator Lummis spoke to the Senate floor on this topic last September, outlining a CBDC that would be a direct Federal Reserve debt instrument, while privately-issued stablecoins would function as commercial assets. She warned that “We cannot allow a CBDC to become a panopticon,” referring to a theoretical prison design that allows a single guard to observe all prisoners without them knowing if they’re being watched.
Critics have warned that CBDC’s can be exploited to spy on citizens. At the Bitcoin 2022 conference last April, Lummis said, "[O]ne of the things that's helping to define the debate is the [Chinese] digital yuan... It's being used as a tool for surveillance, and the Senate is aware of that. And the Fed by the way, is aware of that."
All in all, it appears that government officials are moving in the same direction toward responsible crypto regulation, even if their opinions differ on some of the details.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.