CFTC to Meet On Bitcoin Futures Self-Certification Issue

Two committees of the U.S. Commodity Futures Trading Commission will hold meetings this month on digital currency matters, including the self-certification process used to approve new cryptocurrency derivatives products.

In a statement issued Thursday, CFTC chairman J. Christopher Giancarlo said the commission's technology advisory committee would discuss how virtual currencies could be used broadly, while the market risk advisory committee would hold a meeting on the self-certification process for new products and rules surrounding the product's markets.

Last month, a few days after futures exchanges CME Group and the Cboe announced they would launch bitcoin futures contracts, the Futures Industry Association (FIA), an organization of U.S. clearinghouses, said its members were worried about having to pay for outstanding contracts caused by bitcoin's price changes. The group's purpose is to act as a safety net for when a company cannot pay out its contracts.

At the time, the FIA said a public discussion should have occurred before allowing either CME Group or the Cboe to complete self-certification procedures due to bitcoin being a non-standard product.

While Giancarlo did not share any expectations from the meetings in terms of new regulatory policy proposals, he did say "the responsible regulatory response to virtual currencies is consumer education, asserting CFTC authority [and] surveilling trading in derivative and spot markets," among other actions.

Giancarlo said the CFTC is "cognizant" of the risks related to virtual currencies, specifically referring to bitcoin when saying:

"In addition to the nascent stage of the technology itself, risks associated with virtual currencies include: operational risks of unregulated and unsupervised trading platforms; cybersecurity risks of hackable trading platforms and virtual currency wallets; speculative risks of extremely volatile price moves; and fraud and manipulation risks through traditional market abuses of pump and dump schemes, insider trading, false disclosure, Ponzi schemes and other forms of investor fraud and market manipulation."

The CFTC also released an explainer for investors outlining its approach to futures markets based on cryptocurrencies.

'High Risk of Fraud'

Separately from the CFTC announcements, the North American Securities Administrators Association (NASAA) released a warning on Thursday to investors interested in token sales, cryptocurrencies or cryptocurrency derivatives products, including futures contracts.

According to the warning, a survey found that 94 percent of state and provincial securities regulators think there is a “high risk of fraud” surrounding cryptocurrencies. A full 100% of those surveyed believed that greater investor protections need to be implemented through regulation.

The group specifically cited “initial coin offerings and cryptocurrency-related investment products as emerging investor threats for 2018." The organization's president, Alabama Securities Commission director Joseph Borg, said "wild price fluctuations" can encourage potential investors to place funds into high-risk products they do not necessarily understand.

The Securities and Exchange Commission (SEC) released a statement supporting the NASAA warning, noting that investors are protected by state and federal securities laws that sellers must follow.

However, the SEC statement went on to say “it is clear that many promoters of ICOs and others participating in the cryptocurrency-related investment markets are not following these laws.”

The statement went on to note that while the commission would investigate such violations, it could not guarantee that investors would be able to recover lost or stolen funds. The statement concluded with a recommendation that anyone considering investing in token sales read the NASAA warning.

J. Christopher Giancarlo image via CoinDesk archives