Congress: Are Crypto Disclosures Doing Enough for Investor Protection?

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  • Con­gress sub­com­mit­tee on com­mod­i­ty exchanges, ener­gy and cred­it met this week to dis­cuss the future of cryp­to regulation
  • Dis­clo­sure require­ments should con­sid­er investor knowl­edge of blockchain tech­nol­o­gy, one wit­ness said

In the lat­est instance of US law­mak­ers pars­ing the future of dig­i­tal asset reg­u­la­tion, a House sub­com­mit­tee on Fri­day ques­tioned whether crypto’s dis­clo­sures are ade­quate enough to pro­tect investors. 

The House Agri­cul­ture Com­mit­tee Sub­com­mit­tee on Com­mod­i­ty Exchanges, Ener­gy and Cred­it heard from indus­try play­ers that crypto’s inher­ent trans­paren­cy — all trans­ac­tions are pub­licly and for­ev­er record­ed on the blockchain — is a boon to both risk man­age­ment and security. 

“The trans­paren­cy of blockchains enhances the abil­i­ty of pol­i­cy­mak­ers and gov­ern­ment agen­cies to detect, dis­rupt and, ulti­mate­ly, deter illic­it activ­i­ty in cryp­tocur­ren­cy mar­kets,” Jonathan Levin, Chainal­y­sis co-founder and chief strat­e­gy offi­cer, wrote in his pre­pared testimony. 

Blockchains may be trans­par­ent by nature, but they are also inher­ent­ly hard to com­pre­hend, George­town Uni­ver­si­ty Law Cen­ter Pro­fes­sor Christo­pher Brum­mer said. Investor pro­tec­tion should be a top pri­or­i­ty, and mak­ing dis­clo­sures eas­i­er to under­stand is a key part of advanc­ing that agen­da, Brum­mer added. 

The Com­mod­i­ty Futures Trad­ing Com­mis­sion (CFTC) spends a lot of time and resources on ensur­ing cryp­to com­pa­nies are oper­at­ing with­in the appro­pri­ate guide­lines, accord­ing to Vin­cent McG­o­na­gle, direc­tor of the divi­sion of mar­ket oversight. 

“A strong enforce­ment pro­gram sup­ports mar­ket integri­ty and cus­tomer pro­tec­tion,” McG­o­na­gle said. “We’re look­ing at fraud, pump and dump manip­u­la­tion, ille­gal con­tracts that are being offered to us cus­tomers, not only with­in the US, but from enti­ties out­side of the US. If there is a vio­la­tion of the act of the reg­u­la­tion, the CFTC has strong enforce­ment author­i­ty to deter that mis­con­duct, and if it involves a crim­i­nal vio­la­tion, we work close­ly with our coop­er­a­tive enforce­ment part­ners at the Depart­ment of Jus­tice as well as the US Attorney’s Offices.” 

Charles Hoskin­son, co-founder of blockchain engi­neer­ing com­pa­ny Input Out­put Glob­al and the Car­dano blockchain, agreed with Levin that crypto’s trans­paren­cy is an asset to regulators. 

​​“One of the pow­ers of our indus­try is the fact that reg­u­la­tion can become algo­rith­mic,” Hoskin­son said. “So you don’t have to think, ‘which per­son is going to sit down and look at this big pile?’” 

Blockchain tech­nol­o­gy could sig­nif­i­cant­ly enhance the effi­cien­cy of many gov­ern­ment agen­cies, he added. 

“Think of the IRS and tax returns,” Hoskin­son said. “We could quadru­ple the size of the IRS, but we still couldn’t audit every sin­gle Amer­i­can — it’s just not possible.”


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  • Casey Wag­n­er

    Block­works

    Senior Reporter

    Casey Wag­n­er is a New York-based busi­ness jour­nal­ist cov­er­ing reg­u­la­tion, leg­is­la­tion, dig­i­tal asset invest­ment firms, mar­ket struc­ture, cen­tral banks and gov­ern­ments, and CBD­Cs. Pri­or to join­ing Block­works, she report­ed on mar­kets at Bloomberg News. She grad­u­at­ed from the Uni­ver­si­ty of Vir­ginia with a degree in Media Studies.

    Con­tact Casey via email at [email pro­tect­ed]

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