The U.S.’s top commodity regulator has pointed to New York’s licensing framework for digital assets as a market regulatory success story. Speaking at a gathering of the Economic Club of New York on Monday, Chairman Heath Tarbert of the Commodity Futures Trading Commission (CFTC) pointed to the BitLicense standard as a positive development toward “less burdensome, more business friendly” regulation to encourage innovation and enhance market participation.
Reviews of the licensing standard have been mixed. Since its 2015 rollout, BitLicense has granted just 22 companies an official blessing to conduct cryptocurrency transactions with clients in the state.
In his speech on Monday, Tarbert cited overregulation and market fragmentation—the existence of multiple, incompatible market centers—as key threats to the effective functioning of U.S. commodity markets.
While the CFTC regulates cryptocurrency trading—dominated today by the world’s two largest cryptocurrencies Bitcoin and Ether—cryptocurrency laws are based upon a patchwork of state-level regulations.
Based on recent remarks, it appears that crypto is an area where the chairman is keen to guide the CFTC in a progressive direction. In an interview with Bloomberg television days ago, Tarbert reiterated his view that the United States should take the lead in cryptocurrency market innovation.
Dawn of the CBDC’s
The chair’s remarks come amid rising speculation about how the introduction of Central Bank Digital Currencies (CBDC’s)—digital forms of hard currency, issued by central bank fiat—could change the digital asset market. Observers are split on how CBDC issuance could affect investor appetite for cryptocurrencies, which unlike fiat currency, only become usable upon the unlocking of arcane and energy-intensive mathematical codes.
A study released last month by the Bank for International Settlements (BIS) and reported in Coindesk revealed that 10% of global central banks surveyed were “close” to issuing digital currencies. First in line is China, which is preparing to test run a digital version of the yuan, a move aimed to address the needs of the country’s estimated 200 million unbanked adults. The push to develop the e-yuan is said to have accelerated following Facebook’s controversial proposed digital currency known as Libra.
Pandora’s Box
Speaking at an event at Japan Society in New York City last week titled “The Future of Digital Currencies: Libra & Beyond,” Oki Matsumoto, chairman & CEO of the Japanese retail online brokerage Monex Group, said the Libra proposal had opened a “Pandora’s Box” of currency digitization issues. But, he added, the rollout of the Chinese e-yuan would likely “reopen” that box, spurring other countries to issue CBDC’s, and quickly rendering Libra useless.
Matsumoto was joined on the panel by Simon Potter, currently a Non-Resident Senior Fellow at the Peterson Institute for International Economics and former Head of the Markets Group at the Federal Reserve Bank of New York.
Potter pointed out that even with widespread global CBDC issuance, there are still some arguments in favor of Bitcoin, the dominant cryptocurrency whose global holdings have swelled from fewer than 1 million unique online addresses in 2013 to many times that amount in 2020 (although verifiable numbers are hard to come by).
First, Potter said, bitcoin holds appeal for people who simply don’t trust governments issuing money. Secondly, it appeals to people in countries that don’t trust government in any way whatsoever. And finally, he said, the world is short of assets that allow investors to hedge risk. So if Bitcoin demonstrates hedge-type characteristics—i.e., a lack of correlation to other assets—then it could have some value from an asset allocation standpoint.
How it’s done these days
And there’s another benefit to the ongoing cryptocurrency wave: it’s how people are getting up to speed with cybersecurity tradecraft.
“Hackers don’t try to hack banks anymore—there’s no money actually there,” said Potter. “In crypto exchanges, all of the currency is in custody. So, if you want to learn cybersecurity, you’ve got to learn crypto.”