The scale of problems with the virtual-currency boom is starting to become clear as digital tokens have slid more than 50 percent in value from their peaks in early January, with steep drops on Monday pushing the value of Bitcoin specifically below $7,000, the New York Times reported. The leaders of the two main regulatory agencies in the U.S. that oversee the technology, the Securities and Exchange Commission and the Commodity Futures Trading Commission, are to testify today before the Senate banking committee about their efforts to police virtual currency markets. In the past two weeks, both have brought major cases, but people in the young industry said that regulators had barely made a dent. Some virtual currency enthusiasts argue that the problems are no different from what has happened in other booms, like the internet bubble of the 1990s. But even true believers say that the design of virtual currencies — meant to cut out middlemen and government authorities — has made bad behavior more prevalent amid this particular bubble. “Cryptocurrencies are almost a perfect vehicle for scams,” said Kevin Werbach, a professor at University of Pennsylvania’s Wharton School. “The combination of credulous buyers and low barriers for scammers were bound to lead to a high level of fraud, if and when the money involved got large. The fact that the money got huge almost overnight, before there were good regulatory or even self-regulatory models in place, made the problem acute.” Read more.
In related news, Securities and Exchange Commission Chair Jay Clayton said in prepared testimony for today’s Senate Banking Committee hearing that the SEC is not trying to undermine the potential benefits of cryptocurrencies but instead is trying to raise awareness that many promoters of bitcoin and other coins and tokens might be running afoul of securities laws, the Washington Examiner reported. "These warnings are not an effort to undermine the fostering of innovation through our capital markets — America was built on the ingenuity, vision and spirit of entrepreneurs who tackled old and new problems in new, innovative ways," Clayton said. Instead, he and other regulators have been warning investors to think twice about putting money into cryptocurrencies or "initial coin offerings" because they might run afoul of U.S. securities laws and lack protections. Read more.
Cryptocurrencies and fraudulent transfers are the topic of an article in the February edition of the ABI Journal and a forthcoming ABI Podcast.
