As for blockchain technology, he asserts that the “emerging” technology was still nascent in its use. The commissioner further added that the CFTC’s regulations are quite flexible and not “prescriptive”, elaborating he said:
“We can accommodate new technologies, but, without knowing exactly what technology is and how the blockchain will be used and what the purpose is. We don’t have a definitive set of rules…so it’s an interactive process.”
Per Berkovitz the cryptocurrency and blockchain ecosystem is still in an early phase and may “take some time to develop.” In saying so, he did add that “in the short term there may be uses for cryptocurrencies” and blockchain would enter the fray in the longer term. He stated on the topic of blockchain technology:
“Something like blockchain, if it realizes its potential, can save a lot of costs. There’s a really reliable, immutable, record of these transactions that we can access and it’s got a great potential to simply a lot of record keeping.”
Regulatory requirements
He added that while the CFTC support blockchain and cryptocurrencies, they plan to approach the situation with caution so that the necessary regulation can be put in place on time.
Berkovitz further addressed the constant clash between the crypto-industry and the regulatory authorities, he clarified that there was no “conflict” between the two. If an industry is under a regulatory “umbrella”, the investors get a boost of confidence and trust. As for the regulator, it is pertinent to find the right balance between market integrity, investor protection, market innovation, and cost compliance. He added:
“We’re finding, recently, that a lot of participants in the market want to be regulated. They don’t the be unregulated and viewed as rogue and somehow outside the system.”
Bakkt and ErisX
CFTC is currently considering two notable cryptocurrency projects namely Bakkt and ErisX, for their respective proposals. Notably, both proposals are aimed at bringing publicly traded Bitcoin into the market. While Berkovitz did not mention any names he generally spoke about these proposals, stating that CFTC had “several” proposals which were currently under a “review process”. He said:
“We need to ensure that a crypto-product, just like any other product, that gets traded on our market, meets all our standards and we are engaged very actively in that process.”
In February, the CEO of the Intercontinental Exchange, Jeff Sprecher announced that the launch of Bakkt has been pushed from the early part of 2019 to sometime later in the year. Berkovitz did not reveal much but added that the CFTC is working with ICE and this approval is a ‘priority’ for the agency.
The commissioner went on to states that in order to invite a huge influx of institutional investors into the cryptocurrency space, regulatory compliance is a must. With the technology being pushed into the mainstream and cryptocurrencies finally albeit slowly being classified as an asset class like equities and commodities, institutions will enter and will demand a strong regulatory atmosphere. He added:
“There is a definite market need to have the regulation of markets these institutional investors will invest in.”
As per his prediction, a regulated cryptocurrency atmosphere will invite several corporations to venture into virtual currencies and blockchain technology. Berkovitz also claimed that there were no significant frauds or market manipulations in the cryptocurrency industry in comparison to any new industry operating an unfamiliar technology.
Contrary to Berkovitz this particular view, the Chairman of the SEC, Jay Clayton, stated last week that the regulatory agency was unsure about approving a publicly-traded Bitcoin product due to the nature of market manipulation and volatility of cryptocurrencies.
Berkovitz ended his interview with an affirmative statement that irrespective of a “crypto-winter” or a “crypto-spring”, the CFTC will maintain its long-term perspective on cryptocurrency and blockchain technology and will apply their regulation accordingly.
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