us senate

“J. Christopher Giancarlo for president!”

Thus read one of many tweets praising the market regulatory chief following the conclusion of Tuesday’s US Senate hearing on cryptocurrencies.

Giancarlo, who chairs the US Commodity Futures Trading Commission (CFTC), testified for more than two hours alongside Securities and Exchange Commission (SEC) Chairman Jay Clayton before the Committee on Banking, Housing, and Urban Affairs.

At the beginning of Giancarlo’s opening statement, he diverged from his prepared remarks to explain his view on bitcoin — not as a regulator, but as a father.

The CFTC chairman noted that none of his college-aged children had expressed much interest in investing, even though he and his wife had set up brokerage accounts for them when they were teenagers.

“Well, that changed last year,” he said. “Suddenly, they were all talking about bitcoin. They were all asking what I thought, and should they buy it. One of their older cousins, who owns bitcoin, was telling them all about it and they got all excited, and I imagine that many members of this committee may have had some similar experiences in your own families of late.”

This personal story resonated with cryptocurrency enthusiasts, many of whom have grown accustomed to bracing for impact whenever a regulator or entrenched financier opens his or her mouth to discuss bitcoin.

Then Giancarlo made a statement that not only won him their attention but also their hearts.

“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. “And yet we must crack down hard on those who try to abuse their enthusiasm with fraud and manipulation, and we must thoroughly educate ourselves and the public about this new innovation, and we must make good policy choices and put in sound regulatory frameworks to reduce risks for consumers.”

The emphasis, of course, has been placed on the former part of that statement, as it represents such a tremendous divergence from the disdain with which so many skeptics view cryptocurrency enthusiasts.

Later in the hearing, Giancarlo tipped his hat to the bitcoin community twice more, first by explaining that his niece is a “hodler” and then by pushing back against a senator’s claim that distributed ledger technology (DLT) could be dealt with separately from bitcoin, a common refrain from the “blockchain not bitcoin” crowd.

“It’s important to remember that if there was no Bitcoin, there would be no DLT,” he said.

Somewhat lost in the enthusiastic response to Giancarlo’s testimony were statements from both him and SEC Chairman Clayton affirming the need for “carefully tailored” regulations to protect investors, making it likely that Congress will eventually adopt measures to regulate cryptocurrency exchanges at the federal level rather than the state level, as is currently the case.

Nevertheless, given the heartfelt tone expressed throughout Chairman Giancarlo’s testimony, cryptocurrency investors may have found an unlikely ally.

Featuerd Image from Wikipedia

The U.S. Commodity Futures Trading Commission (CFTC) proposed regulations that will curb unlicensed bitcoin futures trading within the country.

The proposed regulations, announced by the CFTC on Friday, explicitly place bitcoin and other cryptocurrencies under the framework for “actual delivery” that currently governs the purchase of physical commodities such as gold and oil.

Under this framework, exchanges and traders must demonstrate an ability to physically deliver the commodities to their owners within 28 days of purchase. Otherwise, the purchase constitutes a futures contract and is subject to a litany of other regulations governing futures trading.

The full text of the proposed regulatory language has been reproduced below

(1) a customer having the ability to: (i) take possession and control of the entire quantity of the commodity, whether it was purchased on margin, or using leverage, or any other financing arrangement, and (ii) use it freely in commerce (both within and away from any particular platform) no later than 28 days from the date of the transaction; and

(2) the offeror and counterparty seller (including any of their respective affiliates or other persons acting in concert with the offeror or counterparty seller on a similar basis) not retaining any interest in or control over any of the commodity purchased on margin, leverage, or other financing arrangement at the expiration of 28 days from the date of the transaction.

The key point in the proposed language is that the seller may not retain “any interest in or control over any of the commodity” for more than 28 days following the date of the transactions. According to a 23-page document (PDF) accompanying the proposed regulations, this includes exchange-controlled deposit wallets where the trading platform operators — not the traders — retain control of the private keys.

Although the CFTC has long classified bitcoin as a commodity, the physical delivery provision was a thorny issue for cryptocurrency market participants because bitcoin does not exist as a physical entity.

Last year, the CFTC reached a $75,000 settlement with overseas exchange Bitfinex after the commission found that the exchange continued to hold the purchased bitcoins in exchange-controlled wallets after the actual delivery exception expiration date.

The Bitfinex case highlights an important point regarding the extent of the commission’s jurisdiction. The regulations would not just apply to U.S.-based exchanges, but also foreign trading platforms that provide services to Americans. Consequently, this regulatory guidance could lead overseas exchanges that offer margin trading to further restrict access to U.S. residents.

The CFTC will accept public comments on the proposed bitcoin regulations for 90 days, a period that will commence following their publication in the Federal Register.

bart chilton

Former U.S. Trading Commissioner Bart Chilton has long been critical of the fact that regulators have largely allowed the cryptocurrency markets to operate without oversight.

Last year, Chilton — who ran the Commodity Futures Trading Commission (CFTC) from 2007 to 2014 — called for President Obama to personally instruct the CFTC to establish basic consumer protection legislation, and he has repeatedly warned bitcoin devotees that lack of regulation is a “blind spot” for the industry and could prove to be its undoing.

However, recent developments have made him optimistic that the cryptocurrency markets are maturing and could turn a corner into the mainstream.

“I do think it’s sustainable,” Chilton said of bitcoin during an interview with Fox Business Network’s Maria Bartiromo, declaring that JPMorgan Chase chief executive Jamie Dimon is wrong to call it a “fraud”.

“I don’t know if it’s sustainable at these prices,” he continued, noting that the bitcoin price had experienced a flash crash of almost $1,000 earlier this week. Bitcoin’s volatility has been a sticking point for Chilton in the past, and he has stated that if he still chaired the CFTC he would investigate what he believes is naked market manipulation on bitcoin exchanges.

However, he says that derivatives exchange operator CME Group’s announcement that it will list bitcoin futures contracts could be a tipping point in this regard. Flash crashes won’t “happen to that extent on the futures, because they will have…circuit breakers” that limit the degree to which contract prices can fluctuate on a given day, he explains.

Of course, many bitcoin advocates fear that regulations will stifle innovation. New York’s so-called “BitLicense,” for instance, famously led to an exodus of bitcoin services from the state.

Nevertheless, Chilton maintains that basic consumer protections such as limiting price volatility and reducing counterparty risk are critical to the nascent technology’s continued growth.

“They don’t have to be crazy, overly-zealous regulations,” he concluded. “I think the bitcoin enthusiasts are starting to get this, but it’s been a while,”

Today, the LabCFTC, a fintech initiative within the Commodities Futures Trading Commission (CFTC), released a paper titled  “A CFTC Primer on Virtual Currencies.” The doc reveals the CFTC’s current stance on Initial CoinSale (ICO) tokens in relation with other agencies – though there is this disclaimer:

“This primer format is intended to be an educational tool regarding emerging FinTech innovations. It is not intended to describe the official policy orposition of the CFTC, or to limit the CFTC’s current or future positions oractions. The CFTC does not endorse the use or effectiveness of any of the financial products in this presentation.”

The CFTC is essentially saying that it has determined that virtual currencies and tokens are still commodities, but could also be securities – as the Securities Exchange Commission (SEC) has previously said this year. The CFTC’s newest thoughts on virtual currency add this SEC consideration without going back on previous designations. Back in 2015, the agency did declare that it would treat Bitcoin and other cryptographic assets as commodities. The CFTC clarified how their definition of cryptocurrency and tokens is consistent with the SEC’s:

“There is no inconsistency between the SEC’s analysis and the CFTC’s determination that virtual currencies are commodities and that virtual tokens may be commodities or derivatives contracts depending on the particular facts and circumstances.”

ICO tokens, like their underlying cryptocurrencies, are also commodities to the CFTC

Whether or not you agree with the designation of tokens or cryptocurrencies as a security and a commodity (and a property for tax purposes), the additional clarifications do somewhat clear the haze and allow bitcoin and blockchain based companies to charge forward.

Not all ICOs are dandy – and many ICOs are just straight up scams that do deserve multi-agency government crackdown. Take LangPie for example. The decision does give ICOs some additional validation and will undoubtedly be used to guide US-based ICOs, at least.

Full doc here.

What do you think about the CFTC’s suggestion that ICO tokens are both commodities and securities? Let us know in the comments below.