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On February 6th the U.S. Senate Banking Committee held a hearing on the opportunities, dangers and prospects of cryptocurrencies. The hearing involved the testimony of Securities and Exchange Commission (SEC) Chairman Jay Clayton and Commodity Futures Trading Commission (CFTC) Chairman Christopher Giancarlo.

The SEC and CFTC are tasked with overseeing and ensuring the efficient functioning of American financial markets, including potential regulatory issues facing cryptocurrencies. A few days prior to the hearing, a Wall Street Journal joint op-ed by both chairmen highlighted a desire to see cryptocurrencies addressed by appropriate legislative measures.

What Did They Talk About

The discussion topics of the hearing were broad, spanning from Bitcoin, the need for regulating digital currency trading, ICOs and the dangers posed by cyber-attacks. The major highlights of the sessions both came from the testimony of the two agency heads and from the Committee itself:

  • Bitcoin as an investment asset – Senator Mike Rounds asked CFTC Chairman Giancarlo whether Bitcoin can be classified as a commodity, a security, or a hybrid. Giancarlo answered that it displays features of multiple asset classes. Nevertheless, it mostly behaves “like a commodity”, which somewhat hinders its appeal to a wider investing audience. Nevertheless, a decrease in future volatility would improve its attractiveness as an investment asset.
  • ICOs – The views of the SEC on ICOs were clear. Clayton confirmed that every ICO he has come across would qualify as a securities offering, therefore should be regulated accordingly by the SEC. He further suggested that the U.S. government give more power to the SEC to regulate ICOs.
  • The future of blockchain – Chairman Giancarlo illustrated the potential uses of Blockchain technology in various sectors, including mortgage originations, international trade and logistics. Senator Crapo pointed out that distributed ledger technology offers “significant positive potential” to increase investor participation in financial markets. Giancarlo’s comments on how Bitcoin and the Blockchain are inherently intertwined were seen as strongly in favor of Bitcoin and the cryptocurrency space.
  • Volatility and cybersecurity – Various senators pointed out the extreme volatility and cybersecurity threats as the main obstacles to widespread cryptocurrency adoption. In addition, the Committee voiced concerns about foreign countries, including Venezuela and Russia, creating cryptocurrencies that could threaten U.S. consumers. Chairman Giancarlo commented that the CFTC would be on alert to protect American consumers from potential fraud attempts.
  • Regulatory issues – Regulatory efforts must involve other federal agencies, including the FBI and the Treasury, to be effective. The Senate Committee pointed out the frequency of cybersecurity threats, including the most recent theft of $500 MLN of NEM tokens from. Both CFTC and SEC chiefs agreed that enforcement of clearer laws in the crypto space would be beneficial to foster mass cryptocurrency adoption.

Bitcoin ATMFrom the perspective of investors, the immediate reaction after the hearing was positive. Bitcoin jumped from a low of just under $6,000 on the morning of the hearing, the price rebounded almost to the $8,000 by the end of the day.

On a longer-term, the hearing has various potential ramifications, mostly positive. First of all, regulatory oversight on cryptocurrencies would enable the creation of mainstream cryptocurrency financial instruments, including crypto Exchange Traded Funds (ETFs). This would give average investors the opportunity to invest in cryptocurrencies in a regulated and understandable way.

Secondly, the presence of regulation protecting cryptocurrency investments would increase investor confidence. More institutional money (including pension funds, hedge funds, mutual funds etc.) would find its way to the sector, which would be supportive of prices in the longer-term. In addition, the hearing was a landmark event for the adoption of Blockchain technology in the USA. The Committee recognized the potential and opportunities that this technology offers to many sectors in the American economy. This manifestation of a favorable political will bodes well for the future of large scale cryptocurrency adoption.

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NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future

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