Virtual currencies are meant to act as a type of money that can be traded online exchanges for conditional conventional currencies such as dollars. Or use to purchase goods and services predominately online. Developers, businesses, and individuals are selling through selling Virtual Currencies through initial point offerings to raise capital. Year, manyst americans have become increasingly interested in Virtual Currencies especially given the meteor rise in valuation in recent fall bitcoin. Just for perspective, on january 2 last year, bitcoin broke the 1000 barrier and then peak in december at a way thousand dollars and as of this morning is trading at roughly 6,900. Today, the market capitalization of bitcoin is roughly 115 billion. Regulators and heads of industry educate investors. Part, the sec as put forth many statements and guideposts to help the markets and investors. Has issued sec bulletins on initial coin offerings. Theyve issued several enforcementbrought actions against fraudsters and initial joy statements of the cftc about enforcement of Virtual Currency related the cftc has also helped inform the markets by offering a dedicated website on Virtual Currencies. Issuing several statements by chairman jean carlo and others on issue. And scheduling hearings on the topic. Much of the recent news about Virtual Currencies on the negative. There is no shortage of examples that increase investor concerns. Its also important to note that the Technology Innovation and ideas underlying these markets present significant positive potential. These aspects underpinning Virtual Currencies have the ability to transform for investors the competition up in the village to access the financial landscape, thus changing and modernizing Capital Foundation and transfer Risk Technology is forwardlooking and we look to our regulators to continue carrying out their mandates. I look forward to hearing more and learning more about Virtual Currency oversight from or two witnesses. That includes with their agencies are doing to ensure appropriate disclosures and safeguards. Senator brown . Thank you and welcome to the chairs. Its good to have you both. Tual currencies habitat capture the attention of investors and speculators and computer programmers and regulators all of the world. I dont know how many people imagine how quickly and broadly bitcoin and the technology is based on the spread. Its nothing short of remarkable for innovators to understand. Understand the risk of emerging technology is no easy task. The volatility of bitcoin has been also remarkable, the attempts to think of it as additional currency. Bitcoins rise last year at 60 decline last month makes yesterdays dow jones record point drop look like a rounding error. Sometimes it appears that scam artists and hackers may understand more about the technology than most market participants. That should concern all of us. I hope our witnesses help us understand the evolution of the markets and raise awareness of the many threats involved and identify the rogatory gaps. Have made several public statements and the potential to abuse these markets. Neither body has sufficient authority to police all aspects of Virtual Currencies but you must make the most of the authority or have. Bitcoin mania has some analogies to the. Com bubble of the early 90s. Virtual currencies may be used to fund those activities. Many other countries is still in development. I am glad the u. S. Has been a leader but we can do more. We need to be able to get ahead of the curve. I called both of you not to forget her day jobs to pursue whereverh misconduct it might appear. That means main street and wall street. Im concerned its business as usual. Proposed week the cftc penalties on three big banks for market manipulation but then decided they deserved waivers. Haveanks in questions Something Like 68 violations of the last 10 years so its very serious. Payoften we see big banks fines and move right along. Recidivist violators wont stop breaking the laws if your agencies serve as sanctuaries. Im disappointed in your on willingness to us you pursue every avenue available. Virtual currencies bring us into a new age for that doesnt mean we overlook basic principles. Thank you. Thank you. We will turn to the testimony of our witnesses. First we will speak to jay clayton, chairman of the u. S. Securities exchange commission. Following him when we hear from christian carlo, chairman of the u. S. Commodity futures trading commission. We appreciate you coming to share your Knowledge Research on this issue. Member,man, ranking distinguished senators, thank you for the opportunity to testify. Its the important topic of crypto currencies, this record operatings offerings and other. The total value of crypto currencies was estimated at 700 billion earlier this year. Raise nearly 4 billion. Today i will attempt to set we stand. My remarks may be viewed by some but itly simplistic shows how i present these issues to main Street Investors. I break the space into three categories. First, a Promising New Technology called black chain. Will bringbelieve it great efficiency Star National and global economies including our capital markets. I hope it does. The commission looks forward to bringing to working with market dissidents who seek to bring efficiency to our market. Categoriesand third are crypto currencies and icos which are some sex subsets of the companies hoping to take advantage of black chain technology. One is a replacement for dollars the other is like a stock offering. Some of the more widely known crypto currencies were introduced as substitutes for traditional currencies such as the dollar or the euro. Those who promote these currencies assert they will make it easier and cheaper to buy and sell goods, particularly across borders. They have asserted that transaction and verification fees and costs will be limited or reduced. These assertions have proved elusive in many areas. Icos. From what ive seen, they are securities offers. They are like stocks and bonds under a new label. Coined use the term the offer is for a digital forget as opposed to a stock certificate. You can call the coin is a functions security, it is security. Ico may have nothing to do with Block Chain Technology beyond the coin itself. Mean youd ico does not are investing in block chain related ventures. Many problems with the way these markets are operating. First the markets have substantially less oversight that are conditional security markets. If you are treading crypto currencies on a platform that looks like a Stock Exchange, do not take any comfort from that look. Stock exchanges have extensive rule sets that are required to conduct surveillance. Have brokerdealers capital and conduct requirements. These requirements and others, without a doubt, are necessary to protect those markets and our investors. Second, many icos are being conducted illegally. Their promoters and other defense are not following Securities Laws. Some say this is because the law is not clear but i do not buy that for a moment. The analysis is simple. Are you offering a security . You have a choice. Follow our rules are conducted Public Offering registered with the sec. Semantic engage with gymnastics or elaborate structuring exercises to avoid having a coin be security are squarely within the crosshairs of our Enforcement Division. What are we doing about this problems . I look forward to discussing that in more detail but i will first start with a comment on jurisdiction and enforcement. Dictiont have directors over the popular markets that trade true crypto currencies. This is not an oversight. The traditional currency markets did not need direct overseeing. They were sovereign backed and regulated with a long history. Crypto currencies, on the other hand, have no sovereign backing. Functioningrently as assets for trading and investment more than medians of exchange. If asked, will work with other regulators to evaluate address this issue. Our friends of the fed, our friends at the cftc and our friends at the state regulators. Know my time is short. To the extent that Digital Assets are securities, i believe every ico i have seen is a security, we have jurisdiction. We will enforce these laws. Many of these laws also include private rights of action. We are working with the doj and other regulars to enforce these laws. They give the opportunity to testify before you today and i stand ready to work with congress on these issues. Thank you. Thank you, chairman. I have submitted a written statement for the record that details the cftcs work and authority over Virtual Currencies. Wouldour permission, i like to begin briefly with a slightly different perspective, and that is as a dad. I am the follows of a father of three college age children. During their high school years, we try to interest them in Financial Markets. We set up small brokerage accounts with a few other dollars for them to use to buy stocks. Other than my youngest son who owns shares in a videogame company, we havent been able to peek their interest in the stock market. Something changed over the last couple of years. Suddenly theyre all talking about the coin. They are asking me what i thought and should they buy it. One of their older cousins was telling them about it and they got all excited. Members of this committee have had similar experiences. We must crack down hard on those that try to abuse the enthusiasm of fraud. We must educate the public and make good pop policy choices and create migratory frameworks to reduce risks on consumers. Putting my chairman have back on, i believe the right regulatory response has several elements. One, learn everything we can. Initiativehed a new to engage with these innovators and inform the agency about Virtual Currencies and other financial technology. Next is to put things in perspective. 8 00 this morning, the total value of all outstanding bitcoin is about 113. Weve a slightly different figure than you but close. Caps less than the market of one large puppy traded company, mcdonalds. Virtuall value of all currencies around three to 13 billion. Around 7. 6y supplies trillion. The value of all the gold the world is around 8 trillion, which torques the size of the Virtual Currency market. The next task is to tell the public what we learn and educate them. Of noise around Virtual Currency and regulars must help set the record straight. We have produced a large amount of Consumer Education materials including written statements, podcasts, webinars, and a dedicated website. We have even scheduled visits the librarys. Weve never conducted this much outreach for any other financial product. Another element is regulatory coordination. We have to work together. Sec, andudes us, the even state banking officials. The next element is to exercise our Legal Authority while qualifier statutory limitations. Clear, we do not regulate the trading platforms here and abroad. We cannot require them to meet requirements like trade reporting and surveillance. Standard regulations in the futures markets we oversee, yet through our authority over commodity derivative markets, we do have enforcement power over spot coin markets. It it coinlaunched futures, weitcoin regulate. And that leads to tough enforcement. We have launched several civil actions of the past two weeks cracking down on fraudsters and manipulators and more will follow. In closing, i want to quote something chairman clay and i wrote recently. These markets are new, evolving, and international. They require us to be nimble and forwardlooking. Im glad to be with you today and i hope my information is useful. First i will say, i have had those conversations with my own children and youre right. This is an incredibly interesting and growing, new ,rea of financial challenge particularly among my children in yours. Both of you have said in one way or another that neither of you have complete jurisdiction over. Rypto currencies the question i have, is whether you have sufficient jurisdiction. I would like both of you to address that question. Should congress address revising and refining our financial law so that one agency or group of agencies have complete jurisdiction . Do we have sufficient jurisdiction in place . In my position, youre always cautious on speaking for other agencies. I thank you for saying that we , thed all come together federal banking regulators, cftc, sec, states involved as well and have a cordon new plan with dealing with the currency market. I think our main Street Investors look at these trading platforms and assume they are regulated in the same way that the Stock Exchanges regulated as i said, its far from that. You dont take many additional legislative authorities . I think we may. First let us know it you can and cant do and then advise us. I think thats exactly right. We must recognize or the gap is. Said, what we call the spot market for bitcoin is not a regulate marketplace. For us, we are familiar with that because we generally dont have revelatory supervision over spot markets. Thats a longstanding basis. The underline markets we surveilled and will take enforcement action for fraud and manipulation but we dont have the ability to set the standard of the market. Ico, he also is not the jurisdiction. I think the starting point is that. There are other elements and agencies that come to bear on this. There are a patchwork of state regulators across the nation. Some of been very assertive. Some states have nothing. Theres a patchwork here but theres not a conference of structure and thats something i think is a policy discussion and an important one. Have led to my next question. Much of the activity in the markets is crossborder and international. Question of what challenges does at present and what is the per the appropriate role. I will try to be quick. The International Nature of this market is why patchwork is probably not sufficient if its going to continue to develop other snippet market and one to develop as a significant market and one that main Street Investors continue to invest. The challenge of Global Markets is a challenge that i think we face now in many regards 21st century the dawn of the internet. Markets have become truly global. Challenge as we think about regulation. We had that challenge working with overseas relate regulators. We have the challenge of bringing these revelations together in a conference of whole. Its really a tremendous challenge for all of us. In this area, it requires a lot of new thinking. I appreciate remarks from both of you on these issues. I encourage uniform that workgroup. To yourselves and appropriate regulators and evaluate exactly what our structure should look like to do with this. I appreciate that. Senator brown . Nice to see you. Last year, initial coinoperated bash offerings raised about 4 billion. How much of that was raised in the u. S. . Is not clear. Its hard to get a number of that because this is been conducted on largely nonrelated basis. Significant portion to where we should be to paying attention. The sec has taken four actions targeting coin offers. That speaks volumes about the challenges. In response the chairs question, you both talked, leading with you, about agencies working together. And the importance of that. Regulating bitcoin and other Virtual Currencies, doesnt mention any cooperation with the Consumer Financial protection bureau. Hundreds of consumers have filed complaints. How leaving coordinate your work specifically on this but in other areas to . Area, largely through the f sock, i believe i made it very clear my views in this area in this scenario we should all be on the lookout for. The cfpb is a member of that and they have heard my comments there. Perspective, we dont see the cfpb on Security Side of this. Im not aware on a direct action. Several european banks have been fined over 3 million from other regulators but sec has been quiet. Study found that sec is quote, virtually stopped Enforcement Actions against large entities often referred to as wall street firms. That the secidence is able and ready to hold wall street accountable . I actually saw that report so it doesnt come as a surprise to you that someone said to me. I found it annoying to be honest. It didnt reflect the fact that the gestation. For the cases we bring is roughly 22 to 24 months. Any type of statistics have a latency. To them. Period tolatency them. Im confident that the people who are in our Enforcement Division and leading it, many of them former federal prosecutors, two of them heads of the Securities Task force in the ,outhern district of new york are pursuing our security laws vigorously. They come to work everyday day and they have my full confidence. I believe you when you say that. I remember the last sec and it wasnt you. The last sec under a republican president was asleep at the switch. The governor of the richmond Federal Reserve used to tell me watch us and let you know let us know youre watching us. That sec mighted lose 100 of its enforcement staff by not replacing those who leave. This would represent a 7 reduction in enforcement headcount. To be able to fight conditional misconduct. How can you do that . Personnel is my biggest challenge a moment. We have a hiring freeze as a result of natural increases in costs. And peopleeeze retiring or taking other jobs, it reduces the size of the workforce. I could use more people in enforceme