CFTC’s Mark Wetjen on regulation and Bitcoin
In an op-ed written for the Wall Street Journal, Mark Wetjen – a commissioner of the Commodity Futures Trading Commission (CFTC) – stated that in a webcast of an October 9 CFTC public meeting on digital currencies, “the viewers’ comments sent a clear message to federal regulators: Take notice and plan for the expansion of the technology that underpins virtual currencies, because Bitcoin – or something like it – has the potential to act as a disruptive innovation, including in derivatives markets.”
Wetjen wrote that Bitcoin, which he refers to as a “virtual currency,” is important to the commission because a number of merchants who now accept Bitcoin for payment have expressed the need to hedge exposures to fluctuations in Bitcoin’s value. He said that the commission was recently presented with a swap contract on the digital currency that has been listed for trading by one registered trading platform.
Wetjen said there are several other trading platforms that are either already registered or soon will be that intend to list Bitcoin derivatives contracts. He wrote that theses platforms will rely, in some respects, on information provided by an international network of markets where Bitcoin is traded.
Wetjen wrote that under the CFTC’s authorizing statute, the definition of “commodity” could be read to include Bitcoin, in which case the commission would have the authority to bring enforcement actions against any individual who attempts to manipulate Bitcoin. He said the commission “certainly has a responsibility to ensure to the greatest extent the integrity of the derivatives markets, including those for Bitcoin swaps and other virtual currencies.”
With a market capitalization of approximately $4.4 billion USD, Bitcoin accounts for a tiny fraction of the American financial system, wrote Wetjen. However, as Coin Center director Jerry Brito said in the CFTC’s public meeting, the digital currency has the potential to offer tremendous benefits to unbanked and underbanked people, particularly those in emerging markets where there are often no traditional financial services available, said Wetjen. He added that Bitcoin is likely to be a particularly powerful tool for people who rely on mobile-payment applications on their smartphones.
Wetjen wrote that Bitcoin or related technologies can serve as platforms for financial innovation in the digital transfer of currency, contracts, securities, and sensitive information. He said that as venture capitalist Marc Andreessen suspects, such data could play an intriguing role in the derivatives market and in financial services more broadly.
However, to realize such benefits federal regulators and the industry must address the challenges Bitcoin has faced, wrote Wetjen, who noted that cases like the failure of Mt. Gox, the money-laundering scandal involving Liberty Reserve, and revelations regarding illegal activities fostered by Silk Road have shaken the public’s confidence in the digital currency.
“Rarely can derivatives regulators anticipate a new market’s potential benefits while devising an appropriate regulatory framework,” wrote Wetjen. “But virtual currencies such as Bitcoin, and other competing protocols and related technologies, represent such an opportunity.”
He concluded, “Regulators should work quickly to understand how these technologies work and how they affect specific regulatory jurisdictions, with the ultimate goal of creating a regulatory framework should the public begin adopting or using these technologies in greater numbers. Creating a flexible and rational regulatory framework also is the best way for regulators to respond to previous incidents such as Mt. Gox, Liberty Reserve or Silk Road – serious innovators will choose to work within such a regime in the U.S. rather than avoid it, which in turn will build more confidence in consumers currently leery of embracing the new technology, or something like it. That will lay the groundwork for future innovation in virtual currencies.”
Image via CFTC website