Regulatory Series on Cryptocurrencies: US CFTC Chair Sheds Lights on Importance of US Leadership and Principles-Based Regulation on Cryptos

The Commodity Futures Trading Commission (CFTC) has come up with an insight of important role to play in determining as to how these new products and technologies evolve. They have reiterated their mission statement to promote the integrity, resilience, and vibrancy of derivatives markets through sound regulation. The trick with digital assets is to foster the development of exciting new products while mitigating potential risks.

Principles-based regulation involves moving away from detailed, prescriptive rules and relying more on high-level, broadly-stated principles to set standards for regulated firms and products. Companies will then be responsible for finding the most efficient way of satisfying those standards. Such an approach affords greater flexibility to the tech sector. It will also enable the CFTC to stay ahead of the curve by reacting more quickly to changes in technology and the marketplace. 

The Chairman, Tarbert’s commentaries on significance of the U.S. leadership in development of digital assets: “I want the United States to lead, particularly in the blockchain technology that underlies digital assets. Ultimately, I could see it overtaking the internet or being effectively parallel to the internet in using a variety of different kinds of transactions, not just the financial system, but in other types of transactions as well … I think whoever ends up leading in this technology will end up writing the rules of the road for the rest of the world. My emphasis is on making sure that the United States is a leader.

Tarbert on the differences between regulating bitcoin and libra: “They're fundamentally different products … and I think we also know how Bitcoin works.  As you say, it has been around for ten years and we have a good idea of how it works and we're able to classify that not as a security but a commodity, whereas Libra is developing. And there’s a bunch of unanswered questions and also the way that it is structured, linking it directly to a set of national currencies. It’s a very different product.”

The Chairman on the administration’s view of digital assets: “Many of the concerns that Secretary Mnuchin has I have as well in terms of anti-money laundering, making sure that these markets continue to have integrity. So I don't think there's actually any space between us. It's just that for those that are commodities regulated by us, we want to make sure we create an environment where these markets have integrity and we're able to regulate them and they're able to innovate.”

Crypto-derivatives avenues are evolving as Bitcoin and other digital assets are highly volatile investments. Many traders attempt to mitigate their risk simply by buying an asset when the price drops or selling it when the price goes up. Hence, CFTC’s role is quite vital in regulating crypto-derivatives and ensure safety of the crypto community.

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