CFTC Begins to Crackdown on Cryptocurrency Scams

Last year we predicted this would happen in 2018 and now the hammer has dropped: U.S. regulators have begun to assert their control over the cryptocurrency markets. From an economic policymaking perspective, this is very big news. (See the first CFTC Customer Protection Advisory.)

Many people involved in the cryptocurrency markets are understandably wary of government regulators who often choke the life out of businesses with unnecessary bureaucratic red tape. However, in this case, we believe this is relatively good news because it means the CFTC is taking a more assertive role than the SEC. In our experience, the CFTC is easier to deal with and much less bureaucratic. And they explicitly recognized cryptocurrencies as a legitimate asset class, which means the U.S. Government (USG) is not likely to try to ban them any time soon.

Additionally, this reveals an important reality: The USG recognizes that it cannot and/or should not ban cryptocurrencies. Given the USG's increasing budgetary constraints and perpetual congressional gridlock over the USG's debt ceiling, the reality is that regulatory agencies simply do not have the resources to aggressively attack the cryptocurrency markets. Thus, all they can really do is issue Customer Protection Advisories and go after the most egregious scams, as they should.

Another important observation: By giving the CFTC jurisdictional control over cryptocurrencies, the USG is perceiving them (at least for now) as commodities, not securities. That's an important distinction because classification as a commodity requires a much less regulatory oversight than classification as a security. However, this is just the beginning; so, we will likely see a much greater level of scrutiny of Initial Coin Offerings throughout 2018 and beyond; and the SEC may not want to be left out of the regulatory smackdown fun.

A thin layer of CFTC regulation is good for this industry because it will clear out most of the garbage. It’s going to be fun to watch the scammers fall into a torrent of regulatory torture and litigation. We will cover each and every major crypto regulation event; so, stay tuned.