Self-Regulation in Cryptocurrency Markets – RegTech or Red Herring?
By: Samantha Joule Fow
Over the past few years, cryptocurrency market stakeholders have largely agreed regarding the need for increased oversight and self-regulation within the virtual currency industry. And while public officials are still scratching their heads, the cryptocurrency and blockchain tech industry is starting to act.
This year, we’ve seen the development of self-regulatory organizations within the virtual currency industry. And, while it may not have law enforcement authority, a self-regulated organization not only regulates itself, but also holds some regulatory influence over the larger industry. As Brian Quintenz, Commissioner of the U.S. Commodity Trading Futures, explained: “an independent and empowered SRO-like entity could have a meaningful impact on the integrity and credibility of this young marketplace.”
Virtual Commodity Association Forms to Self-Regulate Virtual Currency Markets
The Virtual Commodity Association (VCA), conceptualized in part by the Winklevoss twins, is an industry sponsored self-regulatory organization for the domestic virtual currency industry. As Cameron Winklevoss explained, the VCA was conceptualized to “foster financial sound, responsible, and innovative virtual commodity markets through a system of industry standards, sound practices, and oversight that promotes price discovery, efficiency, and transparency.”
The VCA is comprised of a number of Executives, including an Executive Director, and an independent Board of Directors, all of whom were supposed to be named by the members at the VCA’s inaugural meeting in September of 2018. During the inaugural meeting, the initial members were tasked with discussing and developing guidelines for membership in the VCA, guidelines for best practices and rules-based marketplaces that would promote fair practices, guidelines for best practices concerning member conflicts of interest, and VCA staffing.
Crypto Industry Group Wields Influence – Or Does it?
The Virtual Commodity Association is staffed by people and groups that the digital currency market takes seriously. The initial members of the VCA include, Bitstamp, Inc., bitFlyer USA, Inc., Bittrex, Inc., and Gemini Trust Company, LLC., the latter of which Cameron Winklevoss serves as the co-founder and President. The interim Executive Director of the VCA is Maria Filipakis, who formerly served as the Executive Deputy Superintendent at the New York Department of Financial Services. Notably, she was integral in the drafting and implementation of New York’s regulations pertaining to virtual currency. With such an impressive lineup of supporters, there’s no doubt that the VCA could really throw its weight around today’s cryptocurrency marketplace. However, despite initially promising prospects, little has come of the VCA’s initiatives.
In August of 2018, it appeared that the VCA was making leaps and bounds towards the self regulation of the virtual currency marketplace. However, little has been heard from the VCA since August 20th, 2018 when Bitstamp, Inc., bitFlyer USA, Inc., Bittrex, Inc., and Gemini Trust Company, LLC., formerly announced their participation as initial members. The VCA’s official website, virtualcommodities.org, contains little information and the VCA’s twitter account, @VCAdotorg, last issued a tweet on August 20th, 2018. Moreover, it is unclear as to whether the VCA’s inaugural meeting in September 2018 took place as planned.
Blockchain technology and cryptocurrency has given rise to the field of financial technology – “FinTech” – which led to the spinoff of an entire tech-driven industry focused on regulatory compliance and management technology. This “RegTech” holds promise of a more effective, self-regulating financial marketplace in the future, but for now it appears that early efforts aimed at boosting market function through private controls are flagging. This is leading many experts to the conclusion that self-regulation may not be the next wave in RegTech – rather, it may be just another red herring distracting regulators from imposing stricter market controls. Time will tell…