The Senate Committee on Banking, Housing and Urban Affairs held their meeting today with CFTC Chairman J. Christopher Giancarlo and SEC Chairman Jay Clayton. Giancarlo put on a stunning performance today. He described Bitcoin as “a medium of exchange, a store of value or a means of account.”
From his testimony, he clearly has researched the technology, and understands Bitcoin to primarily serve as a store of value, due to its inefficiency as a means of exchange. He even described HODLing as “holding on for dear life” as the industry vernacular which would support such a use case. His 30-year-old niece is a HODLer, and based on his discussions with her, he sees it as a commodity, and does not see the majority of HODLers as fraudsters or manipulators.
He was clear that they would be aggressive with fraudsters and manipulators. Generally, this would suggest that average investors would not be affected by any regulatory changes that Giancarlo would recommend. However, his words should give start-ups pause about entering this market without having legal representation with a clear understanding of securities law as it exists today, and the direction future legislation may move towards.
Senator Elizabeth Warren chimed in on the hearing, with a question for Chairman Clayton. In her line of questioning, she suggested that the SEC has gotten too soft on companies, citing a Bloomberg article that mentioned how the SEC was “thinking about letting companies sell shares and IPOs while at the same time allowing those companies to prohibit investors from bringing class action lawsuits against them.” Warren asked Clayton whether he supported such a change in SEC policy. Clayton responded that could not respond immediately, but that he could not dictate whether the issue would come before the SEC, and that he was “not anxious to see a change in this area.” When pressed, he explained that he was just one of five votes and could not pre-judge the issue. It would take a long time for it to be debated, and then decided. In short, he did not see this area as a priority.
Warren got off topic and went on to suggest a number of ways that financial advisors could put profit ahead of the interests of their clients. Indeed, her oratory regarding investments of all types, whether in cryptocurrencies or more traditional choices, was highly skeptical. In her view, fiduciary rules serve to eliminate conflicts of interest between these parties. She asked Clayton for a verbal commitment that future changes would not weaken rules for retirement savers. It was a broad question, to which Clayton responded that, “the relationship between an investment advisor, broker, dealer and their client in a very simple area… is regulated by no less than five people, and they all have different standards. My main objective is to bring clarity to that without jeopardizing investor protections.”
Senator Perdue brought the line of questioning back to cryptocurrencies and Bitcoin, and asked rhetorically who pays for frivolous class-action lawsuits. Naturally, investors incur such costs, and the fruits of a victory often find their way to the attorneys on the case, with little left for the investors who were “represented” in such lawsuits. Clayton described “regulatory arbitrage” as a primary issue in the digital currency marketplace. Giancarlo added that “price arbitrage” would also be an issue. They are in communication with regulators outside of the US, and have made it clear that they would go after ICOs that are engaging in misconduct.
Overall, the outlook on Bitcoin and other cryptocurrencies, if based on this hearing, is good. It can be interpreted that the two Chairmen remain in alignment with their previously published testimony. They understand the importance of blockchain technology, and it appears that they will be relatively reasonable with any future legislation and rule-making.