In written testimony delivered to the Senate Banking Committee, the chairman emphasised that cryptocurrency trading platforms were not subject to direct oversight by the Securities and Exchange Commission or the CFTC, as he discussed the drawbacks of a state-by-state approach to oversight.
“Any proposed federal regulation of virtual currency platforms should be carefully tailored to the risks posed by relevant trading activity and enhancing efforts to prosecute fraud and manipulation,” he said.
The chairman proposed “sensible” areas for oversight that included “data reporting, capital requirements, cyber security standards, measures to prevent fraud and price manipulation and anti-money laundering and know your customer protections”.
Cryptocurrencies have had 60% of their value wiped out since the beginning of the year, according to website coinmarketcap. The combined market capitalisation of cryptocurrencies was roughly $300bn on Tuesday morning, while the price of a bitcoin, the pack leader, sat at around $6,500.
Bitcoin futures introduced by the Chicago Mercantile Exchange in December use bitcoin exchanges as an underlying to mark positions, and the subsequent cash-settlement between counterparties.
Concerns about the CME and the Chicago Board Options Exchange’s introduction of these futures have put the CFTC under a lot of pressure from other corners of the derivatives industry. Giancarlo acknowledged in January that clearing members of “at least one” of the derivatives clearing organisations commercially involved with the products had expressed concern.
The news comes as Agustin Carstens, general manager of the Bank for International Settlements, chimed into the cryptocurrency debate, calling bitcoin a “combination of a bubble, a Ponzi scheme and an environmental disaster” in a damning lecture on Tuesday.
Speaking at a lecture in Frankfurt, the banking supervision chief concluded that “while cryptocurrencies may pretend to be currencies, they fail the basic textbook definitions”.
“Their volatile valuations make them unsafe to rely on as a common means of payment and a stable store of value,” he said. “Most importantly, given their many fragilities, cryptocurrencies are unlikely to satisfy the requirement of trust to make them sustainable forms of money.
“While new technologies have the potential to improve our lives, this is not invariably the case.”
Mati Greenspan, a senior market analyst at broker eToro, dismissed Carstens's comments, while noting that US financial regulators had a “very friendly” stance towards cryptocurrencies.
“They’re [SEC and CFTC] looking at them as any other financial asset,” he said. “If it acts as a security then you need to register it as a security and need to fulfil standards and practices in place for securities.
“They also have very clearly stated that they are not here to hamper innovation, but they will bring the hammer down on scams. This is this correct attitude that we need to see from regulators globally.”