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US regulators see gaps in cryptocurrency regulation, may expand oversight

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US regulators see gaps in cryptocurrency regulation, may expand oversight

The Securities and Exchange Commission looks likely to step up its crackdown on initial coin offerings, and it may push for more power to regulate the cryptocurrency space.

Chairman Jay Clayton during a Feb. 6 Senate hearing said all initial coin offerings are securities that should be registered with the SEC, a stricter stance than the regulator has previously taken publicly. Clayton said no initial coin offerings to date have been registered with the regulatory body, nor are any currently in the process of registering.

"We've made it clear what the law is," he said. "We want people to raise capital, but we want them to do it right."

Clayton and Commodity Futures Trading Commission Chairman J. Christopher Giancarlo stressed the need for coordination between all regulatory bodies. Both men said they see blockchain — the technology underpinning cryptocurrencies — as a significant transformational technology. But they also said Congress may need to provide regulators with additional authority.

"The currently applicable regulatory framework for cryptocurrency trading was not designed with trading of the type we are witnessing in mind," Clayton wrote in prepared remarks for the Senate Banking Committee.

Clayton said regulators "should be careful not to go too far," but also stressed the need for regulation in areas where no entity currently has jurisdiction.

"We may be back with our friends from Treasury and the Fed to ask for additional legislation," he said.

Between the two agencies, regulators have recently filed lawsuits over alleged scams, overseen the launch of bitcoin futures and issued warnings to potential cryptocurrency investors. Both Clayton and Giancarlo during the hearing said their current regulatory oversight is limited. Giancarlo said the CFTC is largely limited to regulating the derivatives markets and explained that no federal regulator has jurisdiction over spot market exchanges, where most cryptocurrency trading occurs.

The CFTC has used its anti-fraud authority to bring enforcement cases against platforms that trade bitcoin and other cryptocurrencies, however. Giancarlo said his agency brought three cases last month alone and indicated that more are coming.

In response to a comment that regulators moved too fast with bitcoin futures, Giancarlo said it actually brought regulation to a previously unregulated part of the industry. While bitcoin is anonymous, he said bitcoin futures are fully transparent with investors. The CFTC now has visibility into and data from underlying spot markets because of bitcoin futures that it otherwise would not have, he added.

Senators concerned with bitcoin's volatility raised questions about the actual value of any cryptocurrency.

"Bitcoin's 1,000% rise last year and 60% decline last month makes yesterday's Dow Jones record point drop look almost like a rounding error," Senate Banking Committee Ranking Member Sherrod Brown, D-Ohio, said.

Clayton said he does not know what drives bitcoin's volatility. There are many people who believe there is value to cryptocurrencies, Clayton said, but he has yet to see those benefits manifest themselves in the market.