A former director of a major US regulator has spoken out about how he thinks the cryptocurrency markets can be effectively regulated to prevent scams and fraud.
Gary Gensler, who served as chairman of the Commodity Futures Trading Commission (CFTC) in the US between 2009 and 2014, told the Institutional Crypto: Laying the Foundation conference in New York that it may take time to strike the right kind of balance when it comes to regulating crypto.
In a wide-ranging overview of the topic, the former CFTC head said that he did not believe the law should “regulate the blockchain technology”, but that it instead should act to prevent cryptocurrency fraud by focusing on the way it is used and applied.
“We should…not regulate the blockchain technology, but just ensure that its application, like cryptocurrency, [ensures] investors are still protected. What does that mean? That we make sure there’s not fraud, manipulation, to the extent we can, in the bitcoin markets”, he said.
Gensler drew a comparison between the potential regulation of cryptocurrencies and the regulation of cars and driving as well.
“I would say you want some form of regulation – you want traffic lights and speed limits because then the public is confident to drive on the roads – in this case, the crypto roads. And so I think the two can co-exist, but I think it will take a number of years to…get the balance right”, he said.
Gensler left office in 2014, and he is now a senior advisor to the director of the Media Lab at the Massachusetts Institute of Technology.
Since he left office, the CFTC has taken an active role in using existing law to moderate the cryptocurrency markets.
Back in August, for example, a court in New York granted the regulator the right to prevent a cryptocurrency firm from operating altogether after it was found to have carried out “bold and vicious fraud”. The regulator was also able to charge the company over one million dollars combined in restitution and penalties.
However, it is on the topic of whether or not cryptocurrencies are actually commodities where Gensler’s comments are perhaps most likely to be watched.
The debate on this topic has long since raged, with some arguing that many cryptocurrencies are best described as securities – and should hence be regulated as such.
If that were the case, it may be that the Securities and Exchange Commission (SEC) would be better placed to regulate them instead.
Gensler weighed in on this debate during his comments to the conference. He said: “The crypto exchanges, big exchanges like Coinbase, need to really come within either SEC or CFTC…inside of something to protect investors.”
However, he also suggested that most tokens sold in the context of ICOs (initial coin offerings) were probably securities.
“I think those crypto assets called initial coin offerings, it’s like the old duck test: if it quacks like a duck and waddles like a duck, it’s a duck – these things are like initial public offerings”, he said.