What is cryptocurrency? Senate is weighing

Since the creation of bitcoin in 2009 the cryptocurrency has mostly been operating in a Wild West environment, with almost no regulation of its offerings and activities. This may change soon.

Influential senators are introducing legislation that would mark bitcoin and ether as commodities and therefore hand over regulation to the Commodity Futures Trading Commission. This would change the world of cryptocurrency in two ways: from no regulation to some regulation, and ending the discussion about whether these assets should be regulated as securities rather than commodities.

The most immediate impact for cryptocurrency firms would be additional costs and risks. Ken Joseph, managing director of financial services compliance and regulation at consulting firm Kroll and a former associate director of the SEC, explained that regulation would increase costs due to recruitment and other compliance-related efforts. On the risk side, “you increase the risk of non-compliance, enforcement actions, investigations and examinations … you risk that if you violate those rules, there are going to be consequences,” Joseph says. However, he added that the benefits would still outweigh the costs. “The industry is clamoring for some level of certainty, which is more predictable with respect to the enforcement of rules or regulations.”

The cryptocurrency industry is likely to benefit from regulation because of what it will have to do for investors, as regulation “actually provides some investment confidence, some market participant trust,” Joseph says. “It also provides some transparency and I think provides a level of overall enhancement and assurance that, if you will, there are operators in the space that are in line with some.”

According to Jennifer Connors, financial regulation and enforcement partner at Baker McKenzie, the transition may present less of a challenge for large crypto companies. “There may be some culture shock in regards to assuming regulated status to smaller players in the crypto ecosystem, but larger companies are probably ready and willing to manage, as soon as they understand what the rules are,” Connors says.

Classifying these cryptocurrencies as commodities, and placing them under the CFTC, is a move the cryptocurrency industry has been lobbying for, prioritizing that route to regulation over the possibility of a cryptocurrency being declared a security subject to regulation from the SEC. ,

Firms like Coinbase, FTX and Ripple have spent millions of dollars over the past year lobbying Congress to create a new category for digital commodities and empower the CFTC to regulate it. wall street journal informed ofEmphasizing that “the agency owns about one-sixth of the SEC, and its rules are considered by the industry to be easier to comply with than securities laws.”

However, Joseph stressed that regulation under any agency would be equally strict: “As a former regulator, I think if you ask a CFTC enforcement or examination person if they are less strict than the SEC Well, I don’t think you’ll hear it.”

Meanwhile, Connors thinks regulatory oversight is likely to be shared: “I would suspect the CFTC ends up as the sole regulator; instead, I’d expect a similar outcome to swaps, where the SEC and CFTC have jurisdiction.” share.”