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Do cryptocurrencies have a lack of regulation and what kind of supervision is best suited for this new and complex digital space? These topics were discussed at various hearings on cryptocurrency, which were held by the House of Representatives Committee on Financial Services.
One of the points that cause controversy is an attempt to determine what different cryptocurrencies are. Kristin Parker, a partner at Reed Smith LLP stated that an important detail that needs to be decided is which category of assets cryptocurrencies belong to.
It is important to pay attention to the basic characteristics of the token, including any token issues, in order to determine whether it is a security, a commodity, or neither. In addition, it is necessary to study the facts in each of the specific cases.
It's much easier if one will only deal with the two of the most popular cryptocurrencies, namely Bitcoin and Ethereum.
It is worth noting that Bitcoin and Ethereum are commodities. Peter Van Valkenburgh, Director of Research at Coin Center, explained that crypto assets belong to investment contracts, and their issuance and trading are regulated by the SEC.
He noted that Bitcoin is the world's first digital commodity, to which American investors are turning to hedge against inflation.
Moreover, the federal government does not have to intervene and support the cryptocurrency market during previous periods of volatility.
The main issues discussed were the presence of hedge funds in the crypto space. The problem with the participation of hedge funds in cryptocurrency is that they have the ability to trade in any direction using leverage.
The situation is complicated by the fact that regulators are having a hard time when it comes to the positions of private funds in cryptocurrency since there is no formalized way to find out how many hedge funds are in cryptocurrency. And this creates a systemic risk.
Thus, financial experts have raised the issue of the need for new regulators in the crypto market, highlighting the confusion and lack of supervision.
This lack of regulatory clarity is hurting retail investors, as well as creating confusion when introducing new products to the market.
There were many issues related to stable coins and the lack of regulation.
Goldstein noted that the CBDC Central Bank's digital currency is one of the solutions to the risks associated with stable coins.
Speaking about CBDC, Sarah Hammer, Managing Director of the Stevens Center for Finance Innovation at the Wharton School of the University of Pennsylvania, said that the greatest risk will be related to confidentiality.
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