His statements came in the aftermath of a CFTC webcast, organised last week to discuss a number of questions related to digital currencies.
On the day, more than 5,000 people across the world tuned in to watch the event, which was by far the largest online audience attracted by a CTFC meeting to date. Notably, more of the viewers were from Guangzhou, China, than Washington, DC, according to the commission.
Wetjen has now penned an opinion piece for the Wall Street Journal, explaining why the meeting had proven so popular and what sort of message the commission had hoped to send.
In the article, Wetjen said that the viewers’ comments sent a “clear message” to regulators that they need to take notice and plan for the expansion of blockchain technology that underpins digital currencies. Bitcoin and similar cryptocurrency technologies, he added, have the potential to act as disruptive innovations and leave their mark on the derivatives markets.
Wetjen quoted venture capitalist Marc Andreessen, who argued that bitcoin technology could be used to reinvent the entire financial system, decentralising it in the process.
Although he did not share Andreessen’s optimism, Wetjen indicated there is a need to seriously consider regulating the new technology:
“That sort of revolution may be a long way off, but bitcoin … merits serious regulatory consideration. The virtual currency is important to the CFTC because a number of merchants who now accept bitcoin as payment for goods and services have expressed the need to hedge exposures to fluctuations in its value.”
The CFTC was recently presented with bitcoin swap contracts by one registered trading platform, according to Wetjen. Although he did not name the platform in question, the CFTC approved the first bitcoin derivatives offered by TeraExchange in September.
However, TeraExchange will not be alone for long. Wetjen confirmed there are several other trading platforms that intend to list bitcoin derivatives contracts in the future.
Responsibility to markets
Wetjen explained that definition of a commodity under the CFTC’s authorising statute “could be read to include bitcoin”, therefore, he said, the commission would have authority to take action against anyone who attempts to manipulate the digital currency.
“The CFTC certainly has a responsibility to ensure to the greatest extent the integrity of the derivatives markets, including those for bitcoin swaps and other virtual currencies,” said Wetjen.
Regulators should work quickly to understand how these new technologies work and how they can affect different regulatory jurisdictions, he said. The ultimate goal should be to create a flexible regulatory framework and boost public confidence.
“Creating a flexible and rational regulatory framework also is the best way for regulators to respond to previous incidents such as Mt Gox, Liberty Reserve or Silk Road … That will lay the groundwork for future innovation in virtual currencies.”
While Wetjen admitted that bitcoin’s market cap represents just a tiny fraction of the US financial system, he argued that bitcoin has the potential to provide “tremendous benefits” to unbanked and underbanked users in emerging markets, especially those who using mobile payment systems.
“Bitcoin or similar technologies can be used as platforms for financial innovation in the digital transfer of currency, securities, contracts and sensitive information,” said Wetjen. “To realize these benefits, though, federal regulators and the industry must address the challenges that bitcoin has faced in its brief existence.”
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