There is a bill pending in the Senate co-authored by Wyoming Senator Cynthia Lummis, a Republican, and Senator Kirsten Gillibrand, a Democrat. The crux of the bill is it clarifies who can regulate crypto.
It’s nice to see two diametrically opposed camps work together on something.
Crypto is a weird bird, because it’s a token, a commodity, and a piece of software all built into one thing.
I think some good can come from a fence around crypto with regard to who can regulate it and the proper call is to have the CFTC regulate it, not the SEC.
There are several reasons why the CFTC would be a better regulator.
Long ago, crypto tokens were classified as commodities. The CFTC regulates commodities. The infrastructure is in place and the House Ag/Senate Ag committees are used to regulating them with years and years of case law to lean on.
The CFTC regulatory hierarchy is “principles-based”. The SEC is “rules-based”. Criminals will always break the rules. They don’t care about them and it is rare that the SEC actually prevents fraud before it is committed. The CFTC brand of regulation often prevents fraud before it happens because the entire structure is designed to facilitate competitive trading.
The CFTC environment because it is principles-based is less rigid when it comes to innovation. Marc Andreesen doesn’t say, “Strong rules loosely held”. He says, “Strong opinions loosely held”. Like opinions as data comes in it is far easier to massage the principle than it is a rigid rule. That makes it easier to innovate. Look beyond the exchanges, the commodities business is far more innovative when it comes to contract creation than the stock industry.
Our micro VC led an investment into a firm, OpenFinance. They are still the only firm to my knowledge that navigated the SEC thicket of regulation to get to a point where they could trade securitized tokens. Thanks to Pat Daugherty at Foley Law…. It was an arduous process.
The firm got to the promised land and the SEC killed their business by not letting securitized tokens trade.
The security token business was bought by INX and we will see what happens but the SEC was certainly not a facilitator or friendly.
I compare that to a firm I angel invested in, Bitnomial. They are the first derivatives market that trades crypto with the physical delivery of the crypto token. They are CFTC regulated. The process to get to the promised land was arduous, but very different than the OpenFinance process. It was facilitatory rather than confrontational.
When I was at CME, we found the CFTC good to work with. They worked with us actively on demutualization to make sure that the new structure would protect and make sure the marketplace stayed robust and transparent. The IRS and SEC were another matter.
It is funny that the NY Senator writes a bill to try and move innovation along while the state legislature of NY writes bills to try and kill innovation when it comes to cryptocurrency.
It shows that crypto is not ideological, yet.