The plummet for cryptocurrencies continued as Bitcoin fell below $6,000 ahead of the U.S. Senate hearing regarding virtual currency. The Senate will be hearing testimonies from Christopher Giancarlo, chairman of the Commodity Futures Trading Commission (CFTC) and Jay Clayton, chairman of the Securities and Exchange Commission (SEC).
Bitcoin prices already plummeted on Monday after major financial institutions such as J.P. Morgan Chase, Bank of America and Citigroup banned customers from using credit cards to purchase virtual currency.
The idea of a currency that is decentralized and unregulated by the government has now come to the point where regulators needed to step in to ensure safety for investors.
Many Asian countries, such as China and South Korea have already started to heavily regulate virtual currency by barring certain age groups, receiving approval and implementing capital gains tax. While the U.S. has already followed implementing taxes on virtual currencies, it hasn’t effectively ensured safety to its traders.
As Bitcoin rose to its height in December, frauds and ICOs became more prominent. This raised many concerns and questions regarding how will these potential scams will be prevented in the future. In retaliation, this generated speculations on how government agencies will get involved, causing Bitcoin to fall nearly 50 percent since the beginning of the year.
Both the CFTC and SEC argued that saying tighter regulation and a better communication among federal agencies is required to help protect virtual currency investors and prevent against fraud.
The CFTC and SEC became involved because the two parties are the ones that ensure safety for American investors and enforce regulations in the U.S. stock market, which the government also believes they should be involved in the virtual currency market.
But the problem is that the two agencies do not have complete control over the virtual currency market, which makes it a challenging task to approach. The other challenge posed by virtual currency is that it is connected to a global scale instead of just within the country, which is out of the CFTC and SEC boundaries.
This means that the CFTC and SEC do not jurisdiction over a potential ICO fraud or scam that may emerge in another country, which will also come back and impact American investors.
At the beginning of the hearing, Senate Banking Committee Chairman Mike Crapo highlighted concerned regarding the volatility, investor protection and criminal activity tied to virtual currency, as he emphasized the cyber theft of $530 million from Japanese cryptocurrency exchange Coincheck.
Although Crapo highlights the negatives of virtual currency, he does acknowledge the fact that the technology behind cryptocurrencies definitely have a “significant positive potential.”
Both the CFTC and SEC highlighted the issues revolving around Bitcoin, but couldn’t solve the question of how to ensure protection and control volatility of the market.
Previously, the idea of cryptocurrency Exchange Traded Funds (ETFs) was brought up in order to regulate virtual currency, but Giancarlo said that the SEC needs to resolve issues such as liquidity, valuation and custody of funds’ holdings, creation and arbitrage.
But to simply put it, Clayton had told the Senate: “I can’t give a definitive answer.”
"We [the SEC and CFTC] may be back with our friends from the U.S. Treasury and the Fed to ask for additional legislation." said Clayton.