Reimagining a Centralized Cryptocurrency Regulation in the US
Sangita Gazi is an AIIFL research postgraduate student fellow and a PhD candidate at the Faculty of Law, University of Hong Kong (HKU). Before coming to HKU, she completed an International LLM from Duke University School of Law (Duke Law) in the United States.
This paper puts forth a comparative analysis of the US regulatory responses to cryptocurrency-related derivatives (“cryptoderivatives”) with specific references to the UK’s and the EU’s approaches and motives towards cryptoderivatives regulations in their respective regions. It discusses that the UK and the EU regulators primarily focus on protecting the retail investors from monetary losses arising from investment in cryptoderivatives products.
In contrast, the US regulatory efforts are limited to interpreting cryptocurrency in light of the existing legal and regulatory framework, despite cryptocurrency’s novel risks of price volatility and susceptibility to spot market manipulation, and the CFTC’s lack of oversight over the cryptocurrency spot market. It explores the possibility of imposing an outright ban on cryptoderivatives like the UK but concludes that an outright ban on the cryptoderivatives market is likely to jeopardize financial innovation growth in the US. Furthermore, some cryptocurrency trading platforms are already complying with the existing laws and regulations, and an outright ban will put set them back. Therefore, to protect market integrity and safeguard retail investors’ interest, the paper proposes that Congress enact a comprehensive cryptocurrency regulation recognizing the novelty of the cryptocurrencies’ market risks and introducing effective regulatory treatments to curb market manipulation in the cryptocurrency spot market vis-à-vis cryptoderivatives market. This paper envisions a comprehensive cryptocurrency regulation, which would include (1) centralization of cryptocurrency trading platforms, (2) a mandatory registration requirement for all cryptocurrency exchanges, and (3) a federal cryptocurrency agency, having exclusive jurisdiction over cryptocurrencies and oversight authority on the cryptocurrency spot markets.