Are the Stances of the CFTC and SEC Regarding Cryptocurrency Inconsistent?

LabCFTC, the CFTC's fintech initiative to help technology firms navigate regulations, today published some guidelines on cryptocurrency, particularly those related to the agency’s engagement and exposure over the asset class.

The “CFTC Primer on Virtual Currencies” also aims to advise consumers to be mindful of the potential risks of digital currencies and related investment schemes.

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LabCFTC noted that this primer is the first of a series that will be issued to provide essential knowledge about fintech solutions and also to serve as a guide to using its innovations, such as digital currencies. However, LabCFTC said that these educational resources are only intended to bring clarity to the regulatory approach to ICOs and virtual currencies but they don’t describe the CFTC’s official policy.

“The CFTC does not endorse the use or effectiveness of any of the financial products or technologies discussed in these primer presentations,” it said.

The first part of LabCFTC’s report heavily emphasizes the importance of potential investors understanding the technicalities and the technology behind digital currencies such as Bitcoin.

After a detailed introduction to the digital currencies and its specifications, the primer proceeds to highlight the CFTC’s attitude toward the asset class, which was first defined as commodities in 2015. As such, the CFTC’s jurisdiction is implicated when a virtual currency is used in a derivatives contract, or if “there is fraud or manipulation involving a virtual currency traded in interstate commerce.”

Beyond these instances, the CFTC does not oversee spot or cash transactions involving virtual currencies that do not utilize margin or Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term.

On a related note, the premier sates that there is no inconsistency between the CFTC’s definition of virtual currencies as commodities and the SEC’s determination that Cryptocurrencies Cryptocurrencies By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw Read this Term and its related ICOs are categorized as securities. In fact, the CFTC looks beyond the asset form and considers the actual purpose of transactions when applying its regulations.

Without casting doubt on any of the benefits that digital currencies offer, LabCFTC finished the report by expressing concern about the various risks related to this emerging space, which is vulnerable to operational, cybersecurity, speculative, fraud and manipulation risks.

In conclusion, the public is urged to always conduct extensive research before handing over any money or personal information to a virtual currency platform. Referring to ICO schemes and digital currency both, it says: “Some virtual currency platforms may be missing critical system safeguards and customer protection related systems; without adequate safeguards, customers may lose some or all of their virtual assets.”

The public is, therefore, advised before investing in these types of ventures to be cautious of the risks associated with the usage of such digital currency, LabCFTC states.

Earlier in May, the US Commodity Futures Trading Commission (CFTC) embarked on a journey to become a smart regulator by launching LabCFTC, a New York-based fintech initiative, to make it easier to align CFTC rules with today’s new technologies.

Daniel Gorfine, Director of LabCFTC, commented: “LabCFTC believes that promoting education, understanding, and regulatory clarity around emerging technologies can help facilitate market-enhancing innovation and guard against risks. As people worldwide try to understand and wrap their heads around the virtual currency ecosystem, we thought it timely and important for our first primer to help explain the space, identify how developments involve the CFTC, and highlight risks that investors or users of virtual currencies should carefully consider.”