The CFTC is pro-innovation. We do not have an anti-crypto or an anti-blockchain attitude. We are not out to get new technology. We are out to get the bad guys.
He suggested that were the body to be a node on “the blockchain,” it would help them interact with the marketplace, as it would know the integrity of the records of players involved in the market. Being more closely involved with the technology would allow the body to understand what was happening and have enhanced insight into what various actors were doing.
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Blockchain Poses Challenges To Regulators
Berkovitz says the CFTC’s regulatory structure faces unique challenges in dealing with blockchain technology. The body is charged with regulating specific entities and intermediaries that facilitate transactions. Thus, dealing with blockchain technology’s permissionless and decentralized nature poses problems for regulators that other new technologies wouldn’t.
Without any single point of control or authority over a market, the decentralized structure of permissionless blockchains means the normal targets of regulatory oversight and market participants are more difficult to regulate. However, he argues that regulations and systems are very flexible:
It’s a very rapidly emerging and developing technology… Our regulations are quite flexible. We’ve adopted lots of changes in the financial sector. Our regulations are not extremely prescriptive… We can accommodate new technologies without knowing exactly what the technology is… We don’t have a definitive set of rules.
Berkovitz asserts that regulation around crypto futures and options markets is likely to take some time to develop. Putting an estimate at “several years” with regard to blockchain technology, the Commissioner cautions the community that patience is required of the emerging sector.
What About Bakkt?
Bakkt’s progress has been a matter of great interest to the crypto community for over six months. It has been delayed several times already. The Commissioner didn’t mention the specifics on where Bakkt’s application for approval sat, but he did explain that:
All of the applications before us, we’re working very hard on… Including that one.
Responding to the idea that federal agencies are potentially stifling innovation, Berkovitz argued that regulations could be helpful to new technologies. As regulations are designed to protect investors, they could give the market a sense of confidence it may not have had otherwise.
Protecting the public from fraud and manipulation is the body’s aim, but the regulatory costs of doing so are not overwhelming. Institutional engagement with the technology would not readily happen without investor protection, says Berkovitz, so regulation could prove beneficial in shoring up the blockchain industry.
He says the crypto and blockchain sector is not immune to fraud, but it’s not unlike most new markets in that way. He argues that “new technologies often are susceptible to fraud and manipulation.”
The CFTC has always been regarded as friendlier toward cryptocurrencies than the SEC, which has been engaged in a long-running strategy of regulation through enforcement. The SEC’s approach means the market needs to observe who is being punished and why to determine what the SEC’s position is.
About The Author
Paul de Havilland
Paul de Havilland is a fan of disruptive technologies and has experience covering both traditional and emerging asset classes.