Senate Hearing on Cryptocurrency Highlights

thank you chairman Crapo ranking member Brown and distinguished members of the committee I've submitted a written statement for the record that details the CFTC's work and authority over virtual currencies but with your permission I'd like to get begin briefly with a slightly different perspective and that is as a dad I'm the father of three college-age children a senior a junior and a freshman suddenly they were all talking about Bitcoin and I imagine that maybe members of this committee may have some had some similar experiences in your own families of late it strikes me that we owe it to this new generation to respect their enthusiasm about virtual currencies with a thoughtful and balanced response not a dismissive one and yet we must crack down hard on those who try to abuse their enthusiasm with fraud and manipulation I suggest that the right regulatory response to virtual currencies has at least several elements and the first is to learn everything we can next is to put things in perspective as of 8 a.m. this morning the total value of all outstanding Bitcoin is about a hundred and thirteen billion dollars we have a slightly different figure than you have chairman but close but the point is that that's less than the market cap of one large publicly traded company McDonald's the total value of all virtual currency in the world is around three hundred and thirteen billion in comparison global money supply is around seven point six trillion and that leads to the final element and that is tough enforcement led by the CFTC's virtual currency Enforcement Task Force we've launched several civil actions over the past few weeks cracking down on fraudsters and manipulators and more will follow these markets are new evolving and international they require us to be nimble and forward-looking and coordinated with state federal and international colleagues and engage with important stakeholders including Congress I'm glad to be with you today I hope my kids are listening thank you very much Bitcoin or are these as currently being traded are they a commodity or are they a security or are they both Bitcoin is a medium of exchange a store of value or a means of accounts means of exchanges haven't been closed a Bitcoin there was recently a Bitcoin conference that stopped accepting Bitcoin for registrants because they couldn't process the payments so but yet it's still spoken of as perhaps a means of account from our point of view when it's used as a store of value then it's very much like an asset like a commodity and in fact what we hear a lot of is people buying and holding if you if you go on to the Twitter universe you'll see a phrase h o dl which means hold on for dear life and the thinking is is that they buy it and hold it in fact I mentioned in my opening remarks and so in that regard it's a from our point of view it's a commodity and if there's a derivative on that we regulate it well what little time we have left I'd like both of you to respond to the pump-and-dump efforts that are underway right now you see this beginning to develop can you I know you're both involved in this can you both address what your agencies are doing to combat that Senator Prue this is this is one of the things that I'm worried that investors don't understand which is when you have when you have an unregulated exchange the ability to manipulate prices right goes up significantly and you know just a few coordinated sales can change a price for email for a fraudulent email what would you what would you say to them to help protect them from winding up in a situation a few years from now where it didn't quite work out the way they were hoping but what I would say then is it's the same advice I'd give my children if it sounds too good to be true it is if they're promising ridiculous returns they're ridiculous if if you if you are you going to give them money you'd better be prepared to lose it senator Warner I usually agree with my friend from Louisiana I think we may be on top of something that is transformational and I don't think you can separate the underlying distributed ledger or blockchain from some of these crypto assets and if we looked if we had the same rate of increase that we've the next two years that we've had the last couple years we're talking now a couple hundred billion we be at north of 20 trillion dollars caught up in this area by 2020 and I just I think you I remember back I was lucky enough to get into cell phone business back in the early 80s and everybody thought it was gonna be a small business and they were wrong and I got rich I think we're looking at the same kind of transformation about to take place and we are gonna have to wrap our arms around we will focus on a lot of Bitcoin and crypto assets crypto currencies and I think there's even definitional issues here but you've got a whole new platform called etherium where they're creating you know file sharing or extra computer time I'm not sure what what kind of assets those fall into are they are they potentially regulated within your realm or if there is a trade a trading exchange tokenization exchange between excess computer time that's where we where that fits at this point if you're giving people money in exchange for a future development of a business with the hope of a return and whether that return comes in the form of server time or your ability to sell server time it's a security what are your thoughts on the potential value of that underlying technology of blockchain and distributive ledger technology both the enterprises and consumers and perhaps to government agencies but right down to the way charity dollars are spent the way perhaps refugees are accounted for across the globe there was an article just this morning about the use of distributed ledger technology for two and a half billion people around the world who don't have access to banking services many of these I see oh sorry celebrity promoters to gin up the sales for example last year a Floyd Mayweather the boxer used Instagram to promote the purchase of centric tokens and and I worry about unsuspecting investors that don't have the resources to understand the true risks what can the SEC do to better protect investors who may be persuaded by celebrity promoters to purchase tokens offered in initial coin offerings without fully understanding the risks some time ago we put out an alert that said if you are promoting securities you're taking on securities law liability however some critics have warned that companies are using blockchain as an opportunistic venture to pump up stock prices without having a clear business plan a one company Long Island iced tea I understand change its name to long blockchain and watched its stocks or so are you concerned that companies may be utilizing blockchain as a scheme to pump up their stock prices I'm gonna just open it up to both of you nobody should think it's okay to change your name to something that involves blockchain when you have no real underlying blockchain business plan and try to sell securities based on the hype around blockchain in 2017 companies raised more than four billion dollars in ICS how many of those companies registered their IC o—- with the SEC not one not one and as of today how many companies have registered for upcoming ICS not one not one so we're still at zero can you just say a word about why that's so disclosure light benefits of a private placement and then add to it the public general solicitation and retail investor promise of a secondary market without registering with us and folks somehow got comfortable that this was new and it was okay and it was not a security it was just some other way to raise money well I disagree with them I I am understanding you to say it is violation of law

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