The chair of the U.S. Commodity Futures Trading Commission (CFTC) has said that he wants to adopt blockchain to “keep pace with those who attempt to defraud, distort, or manipulate” financial markets.CFTC Chairman Giancarlo Envisions Compliance Built into Business Operations Through Smart ContractsJ. Christopher Giancarlo spoke about the use of blockchain and machine learning for regulatory purposes at Georgetown University. The head regulator is confident the digital era will prove to be a positive factor to better oversee financial markets.“These tools will become even more paramount as emerging blockchain technologies seek to decentralize markets or disintermediate traditional actors. It is critical that we have the ability to keep pace with those who attempt to defraud, distort, or manipulate.”Giancarlo gave several examples of adoption of new technologies at the regulatory level.These include “using machines to independently identify segments of the markets where concentration risks or unrecognized counterparty exposures are emerging and flag them for staff consideration and action” and “new machine-learning based surveillance tools” designed to “sniff out patterns of likely illegal trading activity or attempts to manipulate markets for enforcement analysis.”The CFTC chair said the ongoing digital revolution in the world’s trading markets have far-ranging implications for capital formation and risk transfer. He added that he expects the majority of standard tasks to be managed by machines as automation technologies are paired with blockchain to standardize and distribute data to market actors and regulators.“We can also envision the day where rulebooks are digitized, compliance is increasingly automated or built into business operations through smart contracts, and regulatory reporting is satisfied through real-time DLT networks. The machines here at the CFTC would have the ability to communicate regulatory requirements and consume and analyze the data that comes in through such systems.”Giancarlo has recently stated that cryptocurrencies “are here to stay” and that many countries across the globe are hungry for functioning currencies, which shows there is a market for digital currencies. He is, however, skeptical about cryptocurrencies’ ability to rival the dollar or other hard currencies.While the U.S. CFTC is yet to adopt blockchain technology to better oversee financial markets, the financial watchdog has won its first Bitcoin fraud action. A New York federal court has ordered Gelfman Blueprint and its CEO Nicholas Gelfman to pay over $2.5 million in civil monetary penalties and restitution over their +$600,000 Ponzi scheme.Related Reading: CFTC Chair: Cryptocurrencies Have a Future, They Are Here to StayFeatured image from Shutterstock.
The chairman of the United States Commodity Futures Trading Commission (CFTC), Christopher Giancarlo, recently discussed the challenges associated with assessing the regulatory implications of bitcoin and cryptocurrency according to the CFTC’s “decades[-]old” legislative mandate.
CFTC Chairman Criticizes 1930’s Legislative Apparatus
In a recent interview with CNBC, Mr. Giancarlo acknowledges the inappropriateness of the CFTC’s antiquated regulatory apparatus when assessing the innovative phenomena of bitcoin and cryptocurrencies.
When asked of the legal classification of bitcoin, Mr. Giancarlo stated: “It’s a great debate […] a lot of people are looking at it from so many different angles, and we at the CFTC have been looking at it for a number of years now.”
Mr. Giancarlo emphasized the challenge of applying the CFTC’s outdated regulatory apparatus to bitcoin, stating that “the statutes under which [the CFTC] operate[s] w[as] written, in our case, in 1935, and the SEC in 1933-34, and it’s often hard to look at those statutes, and find out where something as new and as innovative as bitcoin, and many of the other cryptocurrencies […] fall[s] into a regulatory regime that was written decades ago.”
CFTC Chairman Predicts Bitcoin’s Regulatory Challenges Won’t Be “Resolved Any Time Soon”
When queried regarding previous statements arguing that bitcoin exhibits similarities to commodities, Mr. Giancarlo stated, “I think there are certainly aspects of this that you might call a virtual asset, like gold – only its virtual […] It is an asset that many find worthy of holding for a long period of time,” adding that cryptocurrencies “have aspects […] that might not be ideal as a means of exchange, but might be suitable as a buy and hold strategy.”
The CFTC chairman added “But the truth of the matter of it is, is that bitcoin and a lot of its other virtual currency counterparts, really have elements of all of the different asset classes […] and so, as a world, and as regulators, we are coming to grips with this just now, in real-time,” concluding that “It’s complicated, and I don’t see it being resolved any time soon.”
Bitcoin Futures Regulations “Working Quite Well”
Mr. Giancarlo pointed to the bitcoin futures market as a successful example of cryptocurrency regulation, stating “In our case though, we have seen the licensing and the operation of bitcoin futures contracts, which are cash-settled contracts on bitcoin – operated by [The Chicago Mercantile Exchange (CME)] and [The Chicago Board Options Exchange (CBOE)] – and those contracts are working quite well.”
When asked of the potential risk of “over-zealous” regulation […] stifl[ing] innovation” in the cryptocurrency sector, Mr. Giancarlo stated that “As a regulatory agency, […] the [CFTC] has often been in the forefront of technological innovation, it’s in our DNA as an agency. We try to apply our statute on a principles-based approach – we look at the core principles and apply it to new innovations like this – and that’s the approach that we have taken in the case of bitcoin futures.”
Responsibility for Development of Legislation Lies With Congress
The CFTC chairman emphasized that the development of an effective regulatory apparatus for cryptocurrencies lies with the United States Congress, stating “At the end of the day, it’s for Congress, and not regulators, to decide whether new policies should be evolved for these new asset classes.”
“All […] regulators have to apply [their] statute in the spirit in which it was written […] by Congress,” added Mr. Giancarlo.
Mr. Giancarlo revealed that many politicians are coming to recognize the need for legislative reform regarding the development of cryptocurrency regulations, stating “I think there’s certainly an appetite, amongst a number of congressmen and women, and senators that I have spoken to, to approach this with some new eyes, some new thinking, and so I think there is a growing on Capitol Hill for some rethinking here.”
Growing Recognition of Need for Regulatory Reform
The CFTC chairman stated that “Jay Clayton from the SEC and I recently testified in front of the Senate banking committee, and we talked to Congress about whether maybe some new legislation might be appropriate in this area, and I think you will see, going forward, perhaps in this Congress or a future Congress, some attempt to deal with this new innovation.”
Despite the increasing recognition of the need for legislative reform, Mr. Giancarlo stressed that it will take time for a robust regulatory regime to be developed for bitcoin and other cryptocurrencies.
“I know bitcoin has been in place […] since eight or nine years or so, but the fact of the matter is [it] still is relatively new for us at the regulatory agency,” said Mr. Giancarlo, adding that it will “take some new open-mindedness, some new way of thinking about it, for us to get our heads around it entirely.”
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As commodities regulators go, few have managed to attain the cult following that US Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo has assembled in recent weeks.
However, the markets supervisor — nicknamed “cryptodad” by cryptocurrency enthusiasts — is finding that this newfound fame does not come without its drawbacks.
As CCN reported, Giancarlo earned the “cryptodad” nickname after he gave a surprisingly touching personal statement in a recent Senate hearing on cryptocurrencies, explaining how this technology has fascinated both his children and his niece and has sparked many fruitful dinner table conversations.
“It strikes me that we owe it to this new generation to respect their enthusiasm to respect their enthusiasm about virtual currencies with a thoughtful and balanced response, not a dismissive one,” he said.
Giancarlo, 58, immediately experienced a surge in Twitter followers, after which he issued a series of tweets thanking cryptocurrency users for the positive response and reminding them to conduct research before making any investments.
— Chris Giancarlo (@giancarloCFTC) March 2, 2018
However, as Bloomberg reports, cryptodad’s newfound notoriety has also attracted its fair share of critics.
Critics allege that the mere fact that he is discussing the nascent asset class at all will legitimize it in the eyes of investors, leading them to invest in risky products they may not have otherwise.
Moreover, as has been the case with many prominent cryptocurrency figures, scammers have impersonated Giancarlo’s Twitter account to attempt to make it appear as though he is asking users to send him funds.
Finally, Giancarlo, a Republican, caused a bit of a kerfuffle when he tweeted out a picture of an inter-agency meeting that appeared to have been attended solely by other Republicans. Democrats, both in the CFTC and on Capitol Hill, immediately accused Giancarlo of violating federal open meeting laws.
Nevertheless, the commission has defended Giancarlo’s Twitter activity, arguing that it is a useful platform for directing investors toward the CFTC’s educational materials.
“The Chairman has tweeted a whopping total of 12 times since his testimony to the Senate Banking Committee that garnered such interest in the CFTC’s work on cryptocurrency,” said CFTC spokeswoman Erica Richardson. “Nine of these tweets have been about investor protection and the proactive regulatory work the agency is doing on FinTech and cryptocurrency.”
“[Giancarlo] views Twitter as a valuable platform to reach diverse audiences on customer education,” Richardson added. “He will continue to use Twitter to drive followers to the CFTC’s educational materials.”
Featured image from YouTube.
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