Brian Quintenz, a commissioner in the U.S. Commodity Futures Trading Commission or CFTC, advised cryptocurrency operators to implement self-regulatory standards as well as adopt best practices within their industry. His statement comes at a time when the U.S. government is considering regulating digital currencies. Quintenz’s remarks were made in a gathering of the Technology Advisory Committee of the CFTC.
J. Christopher Giancarlo, the chairman of the CFTC, similarly stated the need to learn more about cryptocurrency’s technology and future applications by gathering information from digital currency experts as well as blockchain enthusiasts. He declared that the gathering’s was to: “…to learn everything we can about the emerging technology and its potential applications.”
Quintenz is also seeking to cull more data that will lead to practical action. He advised, “My intent is for the Committee to use this meeting to identify the issues within each of these areas that it wishes to explore in greater detail, with the ultimate goal of providing the Commission with actionable, practical advice. In many cases, I anticipate that sub-committees may need to be formed to enable the kind of focused review and thoughtful consideration necessary to arrive at those recommendations.”
The committee included blockchain in its discussion as well as the practical application of distributed ledger technology or DLT in the derivatives market. Quintenz was optimistic about DLT when he remarked how it would make the recording of derivatives transaction more cost-efficient. He declared, “DLT has the potential to transform how firms handle the execution, processing, reporting and record-keeping of derivatives transactions.” He added, “Market participants may find that using DLT to satisfy their regulatory obligations results in greater accuracy, greater efficiency and less cost.”
He was also open to the difficulties DLT could bring, he explained, “DTL also presents challenges.” Quintenz elaborated, “From scalability issues, to the complete digitalization of derivative contracts, to DLT’s compatibility with existing CFTC regulations, there are many facets of DLT for the TAC to consider.” Quintenz acknowledged the optimistic excitement virtual currencies bring into the market due to its inherent innovation and novice appeal. However, he also expressed worry when he declared, “…[it] raises a multitude of legal and regulatory questions and challenges.” He cited the possibility of fraud and manipulation on specific digital currency exchange platforms as well as fundamental questions on its legal aspects.
Quintenz stated, “Definitional questions about whether a particular virtual currency or token is a security or a commodity continue to be debated. In addition to these foundational legal questions, the growing demand to trade virtual currencies also elevates the risks to consumers posed by potential fraud and manipulation on spot platforms.”
However, he was able to strike a balance between his concerns as well as the potential of cryptocurrencies to be used in the mainstream when he echoed a similar sentiment from CFTC Chairman Giancarlo. Quintenz and Giancarlo both believe that balanced regulation is critical. Quintenz explicitly stated that regulators need to “respect the enthusiasm of investors” as well as “meet that enthusiasm with thoughtful, balanced regulation.”