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Two top US financial regulators on Monday weighed into the frenzy surrounding trading in cryptocurrencies, warning investors about the risks connected with volatile digital assets on the day bitcoin made its whirlwind debut in the mainstream financial system.
After a rollercoaster week which saw the price of a single bitcoin soar to $19,000, Jay Clayton, chairman of the Securities and Exchange Commission, signalled that the watchdog is keeping a close eye on trading, as well as on cryptocurrency crowdfunding known as initial coin offerings (ICOs).
His move was followed by a warning from J. Christopher Giancarlo, head of the Commodity Futures Trading Commission, that the agency could not protect investors in many cryptocurrency trading venues.
Regulators are increasingly worried about some heavily leveraged retail investors ploughing money into volatile cryptocurrencies, and as bitcoin exchanges have struggled to cope with demand.
On Monday, bitcoin futures products were introduced on Cboe Global Markets, with early price surges twice halting trading as they triggered Cboe circuit breakers.
“Just as the SEC has a sharp focus on how US dollar, euro and Japanese yen transactions affect our securities markets, we have the same interests and responsibilities with respect to cryptocurrencies,” Mr Clayton said.
The CFTC’s Mr Giancarlo said investors should be aware of the “potentially high level of volatility and risk”.
“The relatively nascent underlying cash markets and exchanges for bitcoin remain largely unregulated markets over which the CFTC has limited statutory authority,” he warned.
Meanwhile, the SEC is clamping down on ICOs — a novel mechanism for early-stage companies to crowdfund using cryptocurrencies that has raised a total of $3.7bn this year alone, according to tracker Coinschedule.com.
Munchee, a food review app, on Monday cancelled its ICO which was aiming to raise $15m, after the commission warned that its token constituted an unregistered security.
The SEC released a report in the summer explaining that if an ICO implied that investors could expect a return it would be considered a security, but the legal question has caused confusion.
Although many ICOs have claimed they are offering a “utility” token which will eventually have value that can be exchanged for goods or services on a digital platform, Mr Clayton said many of them may be subject to US securities laws.
“Merely calling a token a ‘utility’ token or structuring it to provide some utility does not prevent the token from being a security,” he said.
Mr Clayton added that for the most part, “the structures of initial coin offerings that I have seen promoted involve the offer and sale of securities”, despite the fact that no ICO has yet registered with the SEC.
However, Mr Clayton assented that ICOs, “whether they represent offerings of securities or not, can be effective ways for entrepreneurs and others to raise funding”.