SEC, CFTC Talk Cryptocurrency and ICO Risks Before Senate Banking Committee

EXCLUSIVE – When it comes to cryptocurrencies and Initial Coin Offerings (ICOs), it seems that the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have their work cut out for them to balance technological innovation with protecting investors.

At least that’s the sentiment that can be drawn from the SEC’s Jay Clayton’s prepared remarks for today’s session before the Senate’s banking committee.

In the 71-page testimony, made public yesterday, Clayton acknowledges that there have been past instances, similar to the current cryptocurrency/ICOs events, of new additions to the market that have raised the collective enthusiasm among people causing them to “rush into certain investments,” that have “benefited our economy.” But having said that, Clayton reiterates that the dangers related to cryptocurrency and ICOs including fraud, security and corruption cannot be disregarded.

Clayton warns in his remarks:

…Regardless of the promise of this technology, those who invest their hard-earned money in opportunities that fall within the scope of the federal securities laws deserve the full protections afforded under those laws. This ever-present need comes into focus when enthusiasm for obtaining a profitable piece of a new technology ‘before it’s too late’ is strong and broad. Fraudsters and other bad actors prey on this enthusiasm.

For CFTC chairman Christopher Giancarlo, “perspective is critically important.” In his remarks he said:

There is clearly no shortage of opinions on virtual currencies such as Bitcoin. In fact, virtual currencies may be all things to all people: for some, potential riches, the next big thing, a technological revolution, and an inexorable value proposition; for others, a fraud, a new form of temptation and allure, and a way to separate the unsuspecting from their money.

This is not the first time that both Clayton and CTFC chairman Christopher Giancarlo have been vocal in their warnings about cryptocurrency. In a co-authored piece for The Wall Street Journal, both Clayton and Giancarlo have articulately outlined their concerns on the matter. 

Not only do cryptocurrencies and ICOs raise the question of securities vs. non-securities, they also raise the question of how to go about regulating and protecting the actual exchanges, (especially now that there’s an example of the actual risk with the $500 million hack of Japanese cryptocurrency exchange a few weeks ago).

The SEC and CFTC remarks come at a time when banks and financial institutions are growing increasingly wary of the phenomenon. Several major U.S. banks, such as Bank of America, Citigroup, JPMorgan Chase & Co., have banned cryptocurrency purchases with their credit cards. Social media platform Facebook has banned advertisements for cryptocurrencies and ICOs on its platform.

Perhaps most daunting is the ongoing fall in price of the most well-known cryptocurrency: bitcoin. Today, it is trading well below its $10,000 milestone at $7,107.95 as of 11 am ET, according to CoinBase.

To learn more about cryptocurrency and blockchain, join us on March 5-6, 2018 at the Parc 55 in San Francisco for Bank Innovation 2018. Click here to request an invitation.