How will regulators respond to Bitcoin’s price fluctuations?
The price of Bitcoin—never stable—has become even more erratic in the last month. From April 17 to May 17, the price fell 26%. Such a huge drop would be noteworthy in a stock investment. But in something claiming to be a currency, that kind of instability is normally only seen in times of crisis and hyperinflation. Coming just as cryptocurrencies are making a play to be considered mainstream, this latest sign of their fluctuating value calls into question whether they can transition from a fraud-prone asset to a viable currency.
Even more concerning from a stability perspective, the latest price drop seems to result from the words of one man: Elon Musk suggested that Tesla might sell (or maybe has already sold) its sizable Bitcoin stake sent the price tumbling. Mr. Musk apparently just learned of the extensive research showing that Bitcoin is fast becoming a major cause of greenhouse gas emissions, on par with many countries. The irony of Mr. Musk’s green car business actively promoting Bitcoin became too much, and he backed off his previous enthusiastic support.
Most seasoned observers assume these price fluctuations will result in increased regulation for cryptocurrency. But what form that may take—and which regulators will be involved—is still unknown. Even before the latest price crash, a congressional bill was introduced to create a task force of SEC and CFTC regulators as well as industry experts to consider the question of what proper regulation should look like. Part of the issue is that it’s not clear who should regulate crypto—is it a commodity for the CFTC or a security for the SEC? It can be both. So far, anyway, the CFTC has taken the lead on bringing enforcement actions against crypto fraud but that may shift with the recent IPO of Coinbase and the further mainstreaming of crypto investing.
The industry is beginning to prepare for what is seen as an inevitable regulatory push by hiring lobbyists to shape the eventual regulations. Fortunately, any industry push will have to contend with the existing whistleblower programs at the SEC and CFTC that will go far to expose crypto frauds and protect investors from bad actors.
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