Testimony by CFTC Chairman, J. Christopher Giancarlo at the hearing on the oversight of virtual currencies

Testimony by CFTC Chairman, J. Christopher Giancarlo at the hearing on the oversight of virtual currencies on 6 May 2018.

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“I’m the father of 3 college-aged children — a senior, a junior and a freshman. During their high school years, we tried to interest them in financial markets. My wife and I set up small brokerage accounts with a few hundred dollars that they could use to buy stocks. Yet other than my youngest son, who own shares in a video gaming company, we haven’t been able to pique their interest in the stock market. I guess they’re not much different than most kids their age.

Well something changed in the last year. Suddenly they were all talking about Bitcoin. They were asking me what I thought and should they buy it. One of their older cousins who owns bitcoin was telling them about it and they got all excited and I imagine that maybe members of this committee may have had some similar experience in their own families of late.

It strikes me that we owe it to this new generation, to respect their enthusiasm about virtual currencies with a thoughtful and balanced response, not a dismissive one. And yet we must crack down hard on those who try to abuse their enthusiasm with fraud and manipulation. We must thoroughly educate ourselves and the public about this new innovation and we must make good policy choices and put in place sound regulatory frameworks to reduce risks for consumers.

Putting my CFTC hat back on, I suggest that the right regulatory response to virtual currencies has at least several elements and the first is to learn everything we can. At the CFTC, we’ve launched a new initiative called Lab CFTC to engage with these innovators and inform the agency about virtual currencies and other financial technology.

Next is to put things in perspective. As of 8am this morning the total value of all outstanding Bitcoin is about $113 billion. We have a slightly different figure than you have, Chairman, but close. But the point is, that’s less than the market cap of one large publicly traded company, McDonald’s. The total value of all virtual currency in the world is around $313 billion. In comparison, global money supply is around $7.6 trillion. And because Bitcoin is sometimes compared to gold as an investment asset, the value of all the gold in the world is around $8 trillion, which dwarves the size of the virtual currency market.

The next task is to tell the public what we learned and educate consumers. There’s a lot of noise around virtual currency and regulators must help set the record straight. The CFTC has produced a large amount of consumer education materials on virtual currencies including written statements, podcasts, webinars, and a dedicated Bitcoin website. We’ve even scheduled visits to libraries and briefings for seniors. We’ve never conducted this much outreach for any other financial product.

Another element is regulatory coordination. Because no one agency has direct authority over virtual currencies, we have to work together. That includes us, the SEC, the Fed, the IRS, the Treasury’s FinCEN network, and even state banking officials.

And the next element is to exercise our legal authority over derivatives on virtual currencies whilst clarifying our statutory limitations. To be clear, the CFTC does not regulate the dozens of virtual currency trading platforms here and abroad. We cannot require them to meet requirements like trade reporting and market surveillance, standards for conduct, capital requirements, or even cyber protections or platform safeguards. These are all standard regulations in the futures markets that we oversee. Yet, through our authority over commodity derivative markets, we do have enforcement power over spot coin markets. And with newly launched Bitcoin Futures, the CFTC can now obtain trading data and analyze it for fraud and manipulation in 5 underlying spot markets.

And that leads to the final element — and that is tough enforcement. Led by the CFTC’s Virtual Currency Enforcement Task Force, we’ve launched several civil actions over the past few weeks, cracking down on fraudsters and manipulators, and more will follow.

In closing, I want to quote something Chairman Clayton and I wrote recently in the Wall Street Journal, “These markets are new, evolving and international. They require us to be nimble and forward-looking and coordinated with state, federal, and international colleagues and engage with important stakeholders including Congress.”

I’m glad to be with you today and I hope my kids are listening. Thank you very much.”