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During a Congressional hearing on July 25th, the Chairman of the U.S. Commodity Futures Trading Commission (CFTC) Christopher Giancarlo addressed several interesting key points regarding blockchain and crypto, and the current approach of the CFTC toward them.
The hearing, labeled “Examining the Upcoming Agenda for the CFTC,” was hosted by the House Agriculture Committee and through which Giancarlo answered all sorts of questions concerning the CFTC agenda and plans for the future. The entire hearing was around two hours long (full video at the bottom), so to make things easy for you, here are the main crypto-related takeaways.
Last year, the CFTC had established a FinTech hub called LabCFTC – the “focal point for the CFTC’s efforts to promote responsible FinTech innovation and fair competition.” Giancarlo was asked to offer more details about this initiative to which he provided the following succinct description:
LabCFTC is really our front door into this new regulatory FinTech developments in the marketplace and it’s so important to us to be able to understand these innovations that are coming down the pike so fast.
You can find more information about LabCFTC on the CFTC website.
The Research and Development Modernization Act
Giancarlo was asked to elaborate on this new legislation, its purpose and necessity; he responded with a long explanation why it is actually extremely vital, aiming directly at blockchain technology.
They call these proofs of concept or beta tests of some of the new technologies especially in the area of blockchain, where there’s six of the world’s major banks … coming together to build a prototype of a blockchain system … and they’ve approached us and said, ‘Hey CFTC! why don’t you participate in this proof of concept? … Why don’t we actually create a node in the blockchain that will be the CFTC regulatory node where you can see everything that’s going on the blockchain?’ And I say, ‘Love it! We’re gonna do this! Let’s make this happen!’
And I go back and I sit down with our general counsel. He says, ‘No! You can’t do that because that would be a gift to the agency and we’re prohibited from taking gifts.’ Then I said, ‘Well, what’s the dollar amount can we use it from our budget?’ ‘No, because it will need to go through an appropriations process’ … By the time we go for all that this thing is already launched. What your bill would allow us to do is to participate in those programs and to accept that position without payment so that we can learn.
In a nutshell, this bill is important because it will enable the CFTC to work closely together with FinTech companies legally.
Upon further elucidating, Giancarlo admitted that the CFTC is faltering in crypto-related issues
We’re falling behind. Just two days ago the Bank of England announced that they’re putting in a new bank-to-bank payment system in the UK and it’s gonna be blockchain-compliant, and they’ve had the last four years … to participate all in all these blockchain beta tests that we’ve not been able to participate in. And they’ve been able to get comfortable with the technology that they’re now incorporating. So I feel like we’re four years behind because we do need to test it, we do need to understand it, we need to see how it can help us do a better job as a regulator.
Crypto Is Still a Very Small Market, Heavy Regulations Aren’t Necessary
Giancarlo also related to the present size of the crypto market, specifying that he believes it’s still very small; and consequently, does not necessitate a lot of regulation, which might hinder its growth.
The amount of ink that’s devoted to cybersecurity far outweighs their real role in the economy. It’s a tiny marketplace; the total capitalization of all cryptocurrency in the world is probably less than one publicly traded company … The best model that I like to point to you is the 1990s when a Democrat White House and Republican Congress worked together around this new thing called the internet, and it took a first ‘do no harm’ approach. Regulation came slowly with the technology evolved … I think we can allow it to develop a little bit before necessarily we run in with regulation.
Later on, when again questioned about this issue, he essentially reiterated that he doesn’t believe that currently crypto necessitates heavy regulation.
As interesting as cryptocurrencies are, in the scheme of things far more important from an agency agenda point of view, I believe is those other markets that are measured in the tens of trillions not on a notional value.
You are welcome to watch the full Congressional hearing here: