On Wednesday, the House Financial Services Committee heard testimony from a collection of cryptocurrency professionals. In addition to addressing concerns about investor speculation, witnesses provided their thoughts on the patchwork of existing regulations. They seemed to possess a shared goal: protecting investors without stifling innovation. However, witnesses presented different ideas about how the crypto-community and federal authorities can achieve that lofty aim.
There is a saying in French, "Le mieux est l'ennemi du bien," which loosely translates to "perfect is the enemy of good enough." Perhaps US legislators would be wise to remember this aphorism after hearing testimony[1] on cryptocurrencies and initial coin offerings (ICOs) on March 14, 2018.
Congressmen repeatedly expressed a desire to "get it right," but that will be difficult amid the rough seas of cryptocurrency regulation. Who possesses jurisdiction over virtual assets? At times, it would appear that the Commodity Futures Trading Commission[2] (CFTC) is in charge, and at other times, the Securities and Exchange Commission[3] (SEC) has claimed authority.
The answer? Well, it just depends.
It's hard to expect clear answers to emerge from these hearings, but today, witnesses provided critical insight into the sometimes-murky distinction between commodities and securities. They each tried to explain to legislators which areas the CFTC oversees and which issues seem to reside with the SEC.
But, it appears that cryptocurrency regulation remains a moving target. In all, the witnesses seemed to agree, it's important for legislators to understand what authority has been established by state and federal regulators before making any rash decisions.
Virtual Currency
According to Mike Lempres, chief legal risk officer of Coinbase[4], the US-based exchange supports trading of four different virtual currencies: bitcoin (BTC), bitcoin cash (BCH), Litecoin (LTC), and Ether (ETH). Coinbase, he said, determined that these digital assets qualify as a "virtual currencies" based on 1) the CFTC's 2015 guidance that bitcoin and other virtual currencies are commodities, 2) a recent ruling[5] that supported the CFTC's classification of bitcoin as a commodity, and 3) the SEC's July 2017 DAO report[6], which referred to Ether as a virtual currency.
Note: BCH and LTC are both based on bitcoin core, so it was assumed that they are subject to the same standards that apply to bitcoin.
If correct, Coinbase's assessment of the facts, is intriguing, because that would mean that enforcement authority over the Ether spot[7] market would appropriately belong with the CFTC. It's important to remember that the agency does not have regulatory oversight authority over spot virtual currency platforms; in fact, no US Federal regulator has such authority.
Of course, assuming that Ether is a virtual currency, the CFTC would also have regulatory jurisdiction over the potential Ether derivatives market in the US and that would likely mean that Ether (like bitcoin) qualifies as property based on
