The chairman of the Commodity Futures Trading Commission, Rostin Behnam, appeared before the US Congress on Wednesday and asked lawmakers to
“grant his agency authority to regulate cryptocurrencies.”
“‘Speculative fervor’ around such assets has left investors in need of protection.”
Regulation of cryptos has, in my mind, never been a question.
The regulation was something that was coming, the regulators just had to get their act together.
One can see this in a very recent book titled “CryptoDad” written by J. Christopher Giancarlo, who preceded Mr. Behnam as the chairman of the CFTC. The book was published by John Wiley & Sons, Inc. a month ago.
The subtitle of the book is “The Fight for the Future of Money.” I would recommend reading this work.
“My responsibility,” Mr. Behnam argues, “is to assume that (cryptos) will continue to take root and that this technology will continue to emerge and wind itself into traditional finance.”
“If we do not approach the technology that way, we run the risk of stability and safety issues and soundness issue.”
Mr. Benham wants authority, just what the creators and many supporters of cryptos did not and do not want.
The Wild West
Paul Kiernan, writing in the Wall Street Journal, reports that regulators in the Biden administration have compared the “roughly $ 2 trillion crypto market” to the “Wild West” and are moving to restrict the freedom that now exists within this particular market space.
One of the driving forces behind this move is the growing number of cases connected with the actual breaking of laws and the defrauding of investors. As these cases grow in number and dollar size, legislators have gotten more and more concerned.
The concern has reached such levels that even crypto lobbyists “have recently” shifted their focus toward convincing lawmakers and regulators that the CFTC should have primary jurisdiction over their industry.
Even the industry is realizing that something must be done, and they want to make sure that the “authority” is given to the “right” agency, not the Security and Exchange Commission, the SEC, but to the CFTC.
And, this is the process, which I have been writing about recently. Good ideas that seem to be consistent with a free-market approach, eventually come under regulatory oversight because of the efforts by “investors” to find new ways to “game” or take advantage of the market to their own benefit.
This is a growing problem in the “crypto” market and this is why, even the lobbyists for the industry, are now searching for the “right” regulator to regulate them.
Makeup Of The Industry
Right now, about 60 percent of the entire market is connected with the two largest crypto firms, bitcoin and ether. The other 40 percent is made up of quite a large number of innovators trying to capture a larger part of the market.
So, it would be a good time for Congress to give authority to some agency to begin the process of regulating what is going on.
Furthermore, if Congress moves in this space, it is highly likely that the actions of Congress will encourage the Federal Reserve to move more rapidly into the areas of digital currencies and payments systems.
The Fed, as I have written about many times, has fallen behind the curve in addressing the issue of digital finance and payment systems and, as a consequence, commercial banks have not been as aggressive in this area as perhaps they should
Unfortunately, this leaves China, and perhaps Europe, leading the tech advancement, an area that the United States is usually near the front.
The good news is that the government is finally stepping up its response to what is happening in the crypto world.
The not-so-good news is that this move to regulate the “future of finance” appears to be coming just when the financial markets are in turmoil and the Federal Reserve and other policy-makers do not seem to know what they should be doing in order to fight inflation, financial dislocation, and a plethora of other economic and political uncertainties.
The technological transformation is going to take place in the banking area regardless of any other disruptions that might be taking place in the near future.
The difficulty regulators will be facing relates to all the distractions that will be occurring in 2022 and beyond.
Cryptos are going to be regulated. In a risky, uncertain environment, it is more than likely that policy-makers and legislators will overreact to what they consider to be a very precarious situation. Better to err on the side of being too careful, than come up short and risk an “accident.”
This will be particularly true to areas that are just considered a part of the “Wild West.” The ultimate makeup of the financial system is still a guess. Radical uncertainty still remains.