Committee met to discuss Virtual Currency, the Commodity Futures Trading Commission discussed the oversight and regulatory actions thus far. This is just under two hours. The committee will come to order. This morning we will receive testimony from sec chairman jay clayton, and cftc chairman Chris Giancarlo on the current world of the oversight conducted by their two agencies. Welcome, gentlemen. Virtual currencies are meant to act as a type of money that can be traded on online exchanges for conventional currencies such as dollars. We are used to purchased goods or services predominantly online. Additionally, developers and businesses and individuals are selling virtual coins or tokens through initial coin offerings also known as icos to raise capital. Over the last year, Many Americans have become increasingly interested in Virtual Currencies especially givenet meteoric rise in valuation and recent fall of bitcoin. Just for perspective in january 2 of last year, bitcoin broke the 1,000 barrier and then peaked in december 2017 at almost 20,000 and as of this morning is trading at roughly 6, 900. Today the market capitalization of bitcoin is roughly 115 billion. This is an incredible rise given that in 2013 when this committee had subCommittee Hearings on the topic, the total value of bitcoin in circulation was approximately 5 billion. As Virtual Currencies have become more widespread financial regulators and heads of Financial Institutions have noticed and voiced their opinions. Regulators and heads of industry have tried to educate investors so they make informed decisions and ensure that the markets they oversee and participate in are working appropriately. For its part the sec has put forth many statements and guide posts to help the markets and investors. Namely, the sec has issued investor bulletins on initial coin offerings, issued an investigative report on what characteristics make an ico security offering and issued several statements by chairman clayton on the issue and brought Enforcement Actions against fraudsters and issued joint statements with the cftc about the Virtual Currencyrelated products. The cftc is informing markets by launching a website to educate investors, bringing Enforcement Actions against individuals involved in cryptocurrencyrelated scams and issuing several statements by giancarlo and others and other commissioners on the issue and scheduling hearings on the topic. Much of the recent news about Virtual Currencies has been negative. Between the Enforcement Actions brought by your agencies, the hack of the International CoinCheck Exchange and the concerns raised by various regulators and Market Participants theres no shortage of examples that increase investor concerns. It is also important to note that the Technology Innovation and ideas underlying these markets presents significant, positive potential. These aspects underpinning Virtual Currencies have the ability to inform for the composition of and the ability to access the financial landscape, thus changing and modernizing Capital Formation and transfer of risk. Technology is forward looking and we look to our regulators to continue carrying out their mandates including Investor Protection as markets evolve. I look forward to hearing more and learning more about Virtual Currency oversight from our two Witnesses Today, including what their agencies are doing to ensure appropriate disclosures and ofsafeguards for investors. Senator brown . Thank you, chairman crepo and welcome. Good to have you both here. Virtual currencies and bitcoin specifically have captured the attention of investors and speculators and computer programmers and regulators all over the world. I dont know how many people imagined how quickly and broadly bitcoin and the technology has spread. Nothing short to most of us its remarkable and critical for regulators to understand innovation and technology so the marks can grow and evolve while investors and consumers are protected, understanding the risks of emerging technologies is no easy task, but were relying on you to maintain the integrity of these new markets and minimizes risks to americans who want to participate in them. The volatility of bitcoin has been also remarkable, defying attempts to think of it as a traditional currency. Bitcoins 1,000 rise last year and 60 decline last month makes the dow jones record point drop look almost like a rounding error, but that growth has shown us the ingenuity and too often, greed, sometimes it appears scam artists and hackers may understand more about the technology than most Market Participants. That should concern all of us. I hope our Witnesses Today help us understand the evolution of the markets related to Virtual Currencies, and raise awareness of the threats involved and identify the regulatory gaps. Each of you has made several public statements recently explaining the threats to Investor Protection and the potential for abuses in Virtual Currency markets. I understand neither the sec nor the cftc has sufficient authority to police all aspects of Virtual Currencies, but you must make the most of the authority that you have. As you noted in the wall street journal, bitcoin mania has analogies to the dotcom bubble of the 90s. I hope there are areas that you do to protect investors. Virtual currency may be to fund Illicit Activity outside of the united states. I know the Regulatory Framework and many other countries is still in development. I am pleased that the u. S. And in particular has been a leader, but we can do more. I hope the chairman agrees that the committee has to look closely at the gaps and to regulate the area to get ahead of the curve. As we demand the demands posed by the currency, i call you both to not to forget your day jobs, not to forget your day jobs to pursue and punish misconduct to more traditional misconduct, but very serious misconduct wherever it might appear. That means main street and i confirm its business as usual by the big banks. The cftc imposed penalties for market manipulation, good, but then decided those firms deserve waivers from bad actor provisions under the Securities Law. That might make sense if this were an isolated incident, but the banks in question in Something Like 68 violations over the last ten years so its very, very serious. Too often, we see big banks pay fines and move right along with little contrition and frankly, no serious punishment. Res id vifts, and your unwillingness to pursue every avenue available. Its clear that Virtual Currencies bring us into a new age, but that doesnt mean we overlook the basic principles of going after the bad guys and being tough when they are repeat offenders. Thank you, mr. Chairman. Thank you, senator brown. Now we will turn to the testimony of our witnesses and first, today, we will receive testimony from the honorable jay clayton, chairman of the securities and exchange commission. Following him, we will then hear from the honorable Chris Giancarlo, chairman of the u. S. Commodity futures trading commission. Gentlemen, we welcome both of you here and we appreciate you coming to share your knowledge and understanding on this issue with us, and chairman clayton, you may proceed. Thank you. Chairman crepo, Ranking Member brown and distinguished senators of the committee thank you for the opportunity to testify before you today. On the important topic of cryptocurrencies and initial coin offerings and related training activities, the total market capitalization of all crypt on currencies was estimated at 700 billion earlier this year. In 2017, icos and initial coin offerings raised nearly 4 billion. These markets are local, national and international. Today ill level set to where we stand from a market regulatory perspective. My remarks may be viewed as overly simplistic and it will reflect how i present these issues to main Street Investors. For ease of analysis i break the space into three categories. First, a Promising New Technology referred to distributed Ledger Technology or block chain. Proponents of this technology assert that it will bring great efficiencies to our national and global economies including our capital markets. I hope that it does and the commission looks forward to working with Market Participants who seek to bring efficiencies including more effective oversight to our markets. The second and third categories are crypt on currencies and icos which are subsets of the products seeking to take advantage of the commercial opportunities presented by block chain technology. One is promoted to be a replacement for dollars. The other is leak a stock offering. Cryptocurrencies, some of the more widely known cryptocurrencies were us introoed as substitutes for traditional currencies such as the u. S. Dollar or euro. They have asserted they will make it easier and cheaper to buy and sell goods particularly across borders. They have asserted the transaction and verification fees and costs will be eliminated or reduced. To date, these assertions have proved elusive in many areas. Icos, from what ive seen, initial coin offerings are securities offerings. They are interest in Companies Much like stocks and bonds under a new label. Promoters use the term coin based on the fact that the security being offer side represented by a digital entry or coin on an electronic ledger as compared with a stock certificate and they related entry in a companys records. You can call it a coin about you if it functions like a security it is a security. Also, importantly, an ico may have nothing to do with distributed Ledger Technology beyond the coin itself. Buying an ico does not mean you are investing in block chainrelated ventures. There are many problems with the way cryptocurrencies and the ico marks are operating and first, the market for these products have substantially less oversight than our traditional securities markets. To be blunt, if you are trading cryptocurrencies on a platform that looks like a Stock Exchange, do not take any comfort from that look. Our Stock Exchanges have extensive rule sets and they are required to conduct surveillance. Also brokerdealers who facilitate Securities Trading have 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 participants are not following our security laws and some say this is because the law is not clear. I do not buy that for a moment. The analysis is simple. Are you offering a security . If so, you have a choice. Follow our private placement rules or conduct a Public Offering registered with the sec. A note for professionals with these markets. Those who engage in semiattanti gymnastics in an effort to have a coin are in the crosshairs of the Enforcement Division. What are we doing about these problems . I look forward to discussing that question in more detail, but we will start on jurisdiction and a comment on enforcement. We, the sec and the cftc do not have direct jurisdiction over the popular markets that trade true cryptocurrencies. This is not an oversight. It is the result of a new product and market the traditional currency markets do not need the regulators such as the sec and cftc, they are solid backed and regulated with the long currency. Cryptocurrencies have no sovereign backing and we are oversight and are currently functioning as assets for trading and investment much more than mediums for exchange. Please do not view this description as a request for expanded sec jurisdiction. If asked, we will work with other regulators to evaluate and address this issue including our friends at the fed, our friends at the cftc and the state regulators and they all have a keen interest in this market. Ill close. I know my time is short. To the extent that Digital Assets like icos are securities and i believe every ico ive seen is a security, we have jurisdiction in our federal Securities Laws apply. We will enforce these laws. Many of these laws also include private rights of action. We are working with the doj and other regulators to enforce these laws. Thank you for your opportunity to testify before you today. Thank you for the opportunity to testify before you today and i stand ready to work with congress on these issues and look forward to your questions. Thank you, chairman clayton. Chairman giancarlo. Ranking member brown and distinguished members of the committee. Ive submitted a written statement and the details and the cftcs work and authority over Virtual Currencies. With your permission, i would like to begin briefly with a slightly different perspective and that is as a dad. I am the father of three collegeage children, a senior, a junior and a freshman. During their High School Years we tried to interest them in financial markets. My wife and i set up small brokerage accounts with a few hundred dollars that they could use to buy stocks. Yet other than my youngest son who owned shares in a video game company, we havent been able to peak their interest in the stock market. I guess theyre not much different than most kids their age. Well, something changed in the last year. Suddenly they were all talking about bitcoin. They were asking me what i thought and should they buy it . One of their older cousins who owns bitcoin was telling them about it and they got all excited, and i imagine that maybe members of this committee may have had some similar experiences in your own families of late. It strikes me that we owe it to this new generation to respect their enthusiasm about Virtual Currencies with a thoughtful and balanced response, not a dismissive one. And yet, we must crack down hard on those who try to abuse their enthusiasm with fraud and manipulation. I mean, we must thoroughly educate ourselves in the public about this new innovation and we must make good policy choices and put in sound, Regulatory Frameworks to reduce risks for consumers. Putting my cftc hat back on, i suggest that the right regulatory response to Virtual Currencies has at least several elements. And the first is to learn everything we can at the cftc we launched a new initiative to engage with these innovators and inform the agency about Virtual Currencies and other financial technology. Next is to put things in perspective. As of 8 00 a. M. This morning the total value of all outstanding bitcoin is 113 billion. We have a slightly different figure than you have, chairman, but close. The point is thats less than the market cap of one large, publicly traded company, mcdonalds. The total value of all Virtual Currency in the world is around 313 billion. In comparison, global money supply is around 7. 6 trillion and because bitcoin is sometimes compared to gold as an investment asset, the value of all of the gold in the world is around 8 trillion which dwarfs the size of the Virtual Currency market. The next task is to tell the public what we learn and educate consumers. There is a lot of noise around Virtual Currency and regulators must help set the record straight. The cftc has produced a large amount of Consumer Education materials and including written statements, podcasts, webinars and a dedicated bitcoin website. Weve each scheduled visits to libraries and briefings to seniors and weve never conducted this much outreach for any other financial product. Another element is regulatory coordination because no one agency has direct authority over Virtual Currencies. We have to work together. That includes us, the sec, the fed, the irs, the treasurys fins annette work and even state banking officials and the next element is to exercise our Legal Authority over derivatives on Virtual Currencies while clarifying our statutory limitations. To be clear, the cftc does not regulate the dozens of Virtual Currency trading platforms here and abroad. We cannot require them to meet requirements like trade reporting and market surveillance, standards for conduct, Capital Requirements or even cyber protections or platform safeguards. That if these are all standard regulations in the futures markets we oversee, yet thro