Without a regulatory framework designed for digital currencies, regulators in United States are reacting to abuses instead of proactively addressing risks. As an example, the Commodity Futures Trading Commission (CFTC), the agency in the United States that regulates futures and derivatives contracts, used its enforcement authority over fraudulent purchases or sales of commodities to stop an alleged digital currency scheme.25 Organizers of the scheme claimed that the digital currency in question—My Big Coin—was backed by gold and actively traded, but the CFTC concluded that neither was true, that payouts to customers were funded with money fraudulently obtained from other victims of the scheme, and that the organizers misappropriated approximately $ million in customer assets.26 My Big Coin appears to have been a modern wildcat currency, but the scheme was detected only because the CFTC could regulate it as a commodity. We are fortunate that, today, the CFTC has this market-based authority to combat fraud in U.S. commodities markets that was not present in the wildcat era.
At a minimum shouldn’t we aim for clarity on certain essential features, such as clarity on the rights of digital currency holders and the nature of assets that back a digital currency? Third, are there key activities that are cardinal to the functioning of digital currencies that require special attention from regulators? These may include actions to create, distribute, destroy, or and transfer digital currencies, and may also include key infrastructures, such as the technology that underpins a particular digital currency. To the extent that these critical activities are performed by actors that are not within a regulatory purview, should we fill this potential gap in oversight? Fourth, should we agree on a common approach across jurisdictions on least some aspects of a refined regulatory approach? Digital currencies can be designed to be used across borders. Key parties may be situated across the globe. If we are to reach ubiquity in regulation, or at least something approaching it, isn’t coordination the way to do so? The Financial Stability Board and the Basel Committee on Banking Supervision may address some of these questions, but it’s too soon to know what they will conclude. Last, should we consider other lenses through which to view these activities? Common sense dictates that we begin with an approach that considers protections for holders of digital currencies against unfair losses and the potential for certain digital currencies to present risk to financial stability. Are there other factors for us to consider? This is not easy stuff.