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CFTC Official Backs Winklevoss Brothers' Crypto Self-Regulation Bid

A proposed cryptocurrency self-regulatory organization (SRO) put forward by Gemini founders Cameron and Tyler Winklevoss has won support from a key government advocate on the issue.

CFTC Commissioner Brian Quintenz has consistently advocated for the creation of a crypto SRO, calling for such a move during last week’s keynote at the DC Blockchain Summit in Washington, D.C.

In a statement released on Tuesday, he congratulated the Winklevosses on their “thoughtful approach” to the area, going on to say:

“Ultimately, a virtual commodity SRO that has the most independence from its membership, the most diversity of views, and the strongest ability to discover, reveal, and punish wrongdoing will add the most integrity to these markets. I encourage Gemini (or any other market participant, advocacy group, platform, or firm) to be aggressive in promoting these qualities within any SRO construct.”

As detailed in a new blog post, Gemini’s proposed “Virtual Commodity Association” would function as a non-profit, independent organization to be governed by a board of directors. It would “not provide regulatory programs for security tokens or security token platforms” or function as a trade organization. The Winklevosses wrote that the group would be modeled in part after the National Futures Association, an SRO focused on the derivatives industry.

“We believe adding an additional layer of oversight on virtual commodity cash markets, in the form of self-regulation, is important for consumer protection and to ensure the integrity of these markets,” they wrote.

Membership will be open to “virtual commodity platforms” and over-the-counter (OTC) trading firms, in addition to “other trading facilities acting as counterparties” which provide an “all-to-all platform or venue, available to U.S. participants, for transacting in the spot virtual commodity markets,” among other types of businesses that service the space.

“We believe a thoughtful SRO framework that provides a virtual commodity regulatory program for the virtual commodity industry is the next logical step in the maturation of this market,” the Winklevosses concluded. “We look forward to engaging with industry leaders participants, regulators, and legislators on this proposal.”

Image via Techcrunch Disrupt, by Max Morse for TechCrunch

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Crypto Industry Should Self Regulate, Says CFTC Commissioner

Regulations can take years to develop, so why wait when you can self-regulate?

That’s the message U.S. Commodity Futures Trading Commission (CFTC) commissioner Brian Quintenz delivered to the audience at the D.C. Blockchain Summit on Wednesday.

“I believe that a private cryptocurrency oversight body could bridge the gap between the status quo and future government regulatory action,” he told the audience in his keynote address. 

Quintenz also suggested that a cryptocurrency self-regulatory organization (SRO) could have an impact beyond the U.S. market, and could potentially take on global significance.

I think right now everyone’s trying to figure out where and how their laws apply to this space,” he told CoinDesk in an interview.

Quintenz continued:

“So if the community takes advantage of that time and that ambiguity there’s the potential for a global framework to apply to everyone if there’s enough buy-in from the community to do that, since there aren’t jurisdictional questions as to which entity has to do what, or rules that necessitate a bifurcation or separate approaches to the regulation.”

Classification confusion

Numerous jurisdictional questions concerning cryptocurrencies and tokens currently face the industry, with the CFTC, the Securities and Exchange Commission and the Internal Revenue Service taking different stances on how they classify the assets.

While Quintenz remarked in the interview that “bitcoin is absolutely, clearly not a security. It is absolutely a commodity,” he also said that the aforementioned agencies and others should avoid reducing the broader space to one type of product. 

“In reality, it’s a very broad array of innovative products that have been created,” he explained, going on to say:

“Some are very simple, some are very complex, some have utility function, some have security-like features, some have payments associated with them or returns or ownership, or I’m sure some could have voting rights. You get into a very murky landscape very quickly as you go through the diversity of the landscape here.”

While the commissioner said it is unlikely that the CFTC would be directly involved in creating a cryptocurrency SRO, he said it could likely offer some guidance informed by policies it has already developed for exchanges and clearinghouses with regard to cybersecurity:

“We can tell them about what we’ve already done and help them navigate the decisions we’ve already made to help inform any new concepts that could better apply to the space so they don’t have to recreate the wheel,” he said.

Agency coordination

As for the CFTC’s role in regulating cryptocurrencies, Quintenz emphasized that he would like the agency to avoid setting policy through enforcement actions, though it has done so in the past. He explained that policy set in that manner would lack “the same force as a commission ruling or as a judge’s adjudication on a case.”

Likewise, he told CoinDesk that the CFTC will continue to work with the SEC in cases where the jurisdiction lines of a given product are unclear, like ICO tokens, for example.

Quintenz said:

“Is that fake token that never got issued a commodity or security? Is it an investment pool? Is it a commodity pool? Someone’s got to take down that bad actor. And we try to coordinate to make sure we know who’s best equipped to do it.” 

Although the CFTC and SEC coordinate on such cases, the commissioner said he was unaware of – and wasn’t able to give any insight into – the rumored SEC subpoena sweep directed at ICO issuers.

However, Quintenz stressed that the SEC has a job to do in ensuring that IPO laws are adhered to.

It does not surprise me that people are trying to get around that, and it doesn’t surprise me that the SEC is figuring that out. And I think that that’s going to be an ongoing conversation,” he concluded.

Image by Annaliese Milano for CoinDesk 

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US Commodities Regulator Establishes Crypto and DLT Committees

The Commodity Futures Trading Commission (CFTC)’s Technology Advisory Committee met today, hosting back-to-back panels on the subject of cryptocurrencies, blockchain and regulation.

The meeting brought together influential figures from both the public and private sectors, with participants primarily raising issues related to markets, the regulation of the new technologies and the role of regulators in participating in the development of the technologies.

Indeed, the event had one tangible outcome from the get-go – just prior to the break, the committee approved the creation of two subcommittees, with one devoted to cryptocurrencies and the other on broader application of distributed ledgers in the finance space.

The event notable saw Brian Quintenz advocate for self-regulatory efforts around cryptocurrencies, a position he reportedly expressed during a pre-event press conference.

Quintenz reiterated this position during his opening remarks and also told attendees that “the CFTC should not attempt to make value judgments about which new products are securities.”

“The markets, investors and consumers need to decide that for themselves,” he said. Quintenz did, however, also lend support to the Commission’s efforts to prevent fraud and market manipulation.

As for the blockchain, several panel participants – including those drawn from the ranks of the CFTC itself – said that new regulation was required in order to accommodate the technology.

“The futuristic visions of regulatory oversight must incorporate DLT as it continues to improve and mature,” Dan Busca, deputy director of the CFTC’s division of market oversight. “Trying to adapt a system to meet regulations as an afterthought is often costly and inadequate.”

Busca later suggested that that blockchain could be a potential tool for regulators, highlighting how market watchdogs would operate their own nodes on a distributed network and be fed information in real-time.

“The evolution of DLT could allow regulators to access data seamlessly every time a trade is posted on a particular blockchain without the need for human intervention or intermediaries;” this, in turn, would make the CFTC more “nimble and efficient,” Busca claimed.

Private sector perspective

Committee members from the private sector expressed mixed views on cryptocurrency and blockchain regulation and the extent to which regulators should involve themselves.

Charley Cooper, managing director of R3, appealed to regulators to boost their involvement in the blockchain and cryptocurrency industries.

“We would ask as passionately as possible for the US regulators and members of the agencies of the government to become more active than you already are,” he said. “I can tell you that there are federal governments around the world that are way outpacing the U.S. government. And that’s a concern.”

Brian Knight, a senior research fellow at George Mason University’s Mercatus Center, raised concerns about the expanding role of regulators in cryptocurrency and blockchain, and said such involvement could prove problematic.

“If we’re going to have the regulator serve as a kind of consultant, how do we make sure that’s fair?” Knight queried.

And, as demonstrated by its decision to form cryptocurrency and blockchain specialized subcommittees, the Technology Advisory Committee indicated that its exploration of the technologies will be ongoing and that it expects them to have a “transformative impact on trading, markets and the entire global financial system.”

Committee table and microphone image via Shutterstock

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The CFTC Still Doesn't Know What Constitutes Cryptocurrency 'Delivery'

The U.S. Commodities Futures Trading Commission (CFTC) is reportedly still working to define when exactly a cryptocurrency can be deemed “delivered” due to the complexities of cryptographic key management.

Referencing past enforcement actions by the agency, CFTC Commissioner Brian Quintenz said at an event last week that officials at the agency are “working very hard to provide a suitable response to that question.” At the same time, he also raised recent media criticism of bitcoin, including the argument that it is a “fraud” as advanced by JPMorgan Chase CEO Jamie Dimon.

Yet his comments on the rules for the delivery of digital commodities are perhaps the most significant, coming more than two years after the agency first said it would begin overseeing the trade of cryptocurrencies in the U.S. as commodities.

He said at the event:

“Would someone here like to tell me how to define the ‘actual delivery’ of a virtual commodity? The CFTC is working very hard to provide a suitable response to that question.”

That lack of clear-cut rules in this area – a result of existing regulations clashing with new technologies and the products they facilitate – is what led to a $75,000 settlement in June 2016 for cryptocurrency exchange Bitfinex amid allegations by the CFTC that it did not properly deliver funds to customers.

And it was that enforcement action that subsequently sparked a petition by U.S. law firm Steptoe & Johnson LLP to address the matter. In July of last year, the law firm asked the CFTC to provide regulatory clarity regarding the definition of “delivery” in the context of transactions conducted using blockchain-based assets.

While Quintenz didn’t offer a clear timeline for release of its proposed rules, he did say that they would be subject to open debate by both the agency itself and its private-sector advisory committee.

“Once a proposal comes forward, I expect to request the [Technology Advisory Committee’s] input and feedback as we work to provide regulatory consistency with other commodities … as well as regulatory certainty within which a more constructive trading environment may develop,” he said.

Commentary pushback

Elsewhere, Quintenz called recent media coverage around bitcoin “terribly misguided.”

In recent days, a number of notable Wall Street figures and financial analysts have taken aim at the cryptocurrency market, with Goldman Sachs CEO Lloyd Blankfein and Morgan Stanley CEO James Gorman joining Dimon by offering negative perspectives on the technology.

According to Quintenz, those views – particularly about market speculation – miss the point.

“Certainly, we can all debate the value of bitcoin – whether it is overvalued, undervalued, or a ‘fraud’ – but that price-based conversation misses bitcoin’s broader technological and innovation achievements entirely,” he said at the event, adding:

“One of the most fascinating aspects of bitcoin is not that it’s a virtual currency. It’s that it’s an ecosystem.”

Those characteristics – and the benefits and risks they bring – present both challenges and opportunities for regulators like the CFTC, he argued.

“But it is important for us as regulators to be aware of the diversity of these potential ledger ecosystems, from the narrow and mostly private to the very broad and incentivized, so we can appropriately estimate risk and regulation,” he said.

CFTC image via Shutterstock

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