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US Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo gave testimony to the US House Agriculture Committee earlier this week and shared his opinions on cryptocurrency, which remain quite consistent as his previous public assertions regarding the crypto world.
Chairman Giancarlo talks about “transforming the CFTC into a 21st Century digital regulator” by enabling the CFTC to respond to rapidly changing markets and technological developments, such as blockchain and cryptocurrencies. Giancarlo argues that the CFTC and other regulators need to respond quickly to technological growth and develop an “exponential growth mindset” that will both impose proper regulation on emerging financial technology in a timely manner, as well as promote innovation.
He also acknowledges the need for careful balance and consideration when it comes to this process of managing the tension between innovation and regulation, proposing that the CFTC should establish an internal FinTech stakeholder to handle such matters.
Giancarlo also discusses how clearinghouses have become “critical single points of risk in the global financial system” and how they are increasing in number. Clearinghouses are financial institution or organization that acts an an intermediary between a buyer and seller and seeks to ensure a smooth process for activity between the two parties. When it comes to cryptocurrency, traditional clearinghouses are less common. Centralized exchanges usually store and clear the currencies available on their platform, which makes them vulnerable to hacking. Because of this, if we see more regulation in the cryptocurrency industry, we will likely see the emergence of more clearinghouses.
In his speech, Giancarlo said:
In addition to U.S. clearinghouses, the Commission has six registered clearinghouses located overseas and exempted four foreign clearinghouses. The Commission anticipates new applications for clearinghouse registration resulting from the explosion of interest in cryptocurrencies; an area in which protection of the cryptocurrencies will be one of the highest risks.
Overall it appears that Chairman Giancarlo is attempting to strike an appropriate balance between innovation and regulation in the cryptocurrency and blockchain industry. It has long been a worry for crypto enthusiasts that too much regulation in the space will negatively impact innovation and drive business away from the US into less regulated lands. It seems that the CFTC is cautious of this being a reality and wants to engage with the emerging technology and treat it as something new and independent, rather than slapping the old rules onto it.
It will be interesting to see what measures the CFTC take in the next couple of years and how these measures affect the industry, a careful and appropriate balance may lead to both more innovation and more protection.