UPDATE - Digital assets have 'gap' in regulation, says US regulator chief

ADDS COINBASE CHIEF LEGAL OFFICER'S TESTIMONY, COMMENTS

By Ovunc Kutlu

ISTANBUL (AA) - Digital assets, such as cryptocurrencies and Bitcoin, have a "regulatory gap" that needs to be addressed, the chief of a US market regulator told Congress on Tuesday.

"One of the core recommendations called on Congress to enact legislation to fill the clear regulatory gap over the spot market for digital assets that are not securities," Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam said in testimony before the US House Committee on Agriculture.

"Leaving billions of dollars of customer funds and investments in largely unregulated entities is a recipe for disaster. But, recent history can teach us many lessons," he said, citing the 2008 financial crisis and reforms that followed.

Behnam listed core principles of market regulation, including "transparency, reporting, and registration," and added: "These tools are necessary to prevent future crises."

"The largest token, Bitcoin, is a commodity and that has been determined by a federal court; and that, under US law, is unregulated," he said.

Behnam's comments came after the Securities and Exchange Commission (SEC) charged crypto exchange platform Coinbase with violating exchange and securities laws.

The SEC also filed 13 charges Monday against the world's biggest crypto trading platform, Binance, and founder and CEO Changpeng Zhao, for violating several US securities laws.

Coinbase Chief Legal Officer Paul Grewal said in testimony that the spot market for digital asset commodities will continue to lack federal supervision if Congress does not take steps in regulations for cryptocurrencies.

"As things currently sit right now, there is no protection for the spot market, and that's the most opportunity that would be lost if the Congress fails to act," he said.

Grewal warned that innovation and investment in the cryptocurrency sector would move resources outside the US that have a more balanced regulatory framework structure for the crypto industry.

He said the issue in hand is "both about protecting consumers on the one hand and making sure that innovations are being developed in the US."

Grewal, in a blog post Monday, wrote that the US is pushing technology and innovators overseas due to lack of clear rules and regulations for cryptocurrencies.

"Crypto is a growing asset class solving real-world problems for millions of consumers around the world. How the US defines and regulates digital assets will have major implications for our technological and financial future," he wrote.

Stressing that digital assets do not collectively fit into any single existing regulatory box, he wrote that "some are commodities, some are securities, some are neither, and some simply don’t map onto existing categories."