As the popularity of bitcoin and other digital currencies grows, would it make sense for the U.S. government to create a new watchdog to oversee cryptocurrencies?
That’s the question being posed by The New York Times after the leaders of the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) discussed the challenges of regulating the use of cryptocurrencies.
One big issue: Neither agency has experience in overseeing virtual currencies, and there is a need to create rules and effective oversight focused on crypto.
In addition, Jay Clayton, the chairman of the SEC, spoke about how cryptocurrency trading platforms that call themselves “exchanges” gives investors a false sense of security, as people then believe they are regulated like the New York Stock Exchange and the Nasdaq.
However, the users of these platforms “do not receive many of the market protections that they would when transacting through broker-dealers on registered exchanges,” said Clayton.
J. Christopher Giancarlo, the chairman of the CFTC, also explained that while his agency does regulate futures contracts tied to cryptocurrencies, as well as firms making transactions with them, the CFTC “does not have regulatory jurisdiction over markets or platforms conducting cash or ‘spot’ transactions in virtual currencies, or over participants on those platforms.”
That is bad news for investors, especially given the fact that crypto firms have been the victims of large thefts from customer accounts. For example, an Italian cryptocurrency exchange called BitGrail reported just last week that Nano tokens worth approximately $170 million had been stolen in unauthorized transactions. And Coincheck, an exchange in Japan, revealed in January that hackers had stolen $530 million from investor accounts.
While the thefts could be prosecuted in the U.S., the chances of finding the cybercriminals would be slim because most of these exchanges are outside the country.
The Times goes on to report that “regulating the exchanges would be a significant step toward ensuring there is at least some protection for those buying and selling cryptocurrencies.”