U.S. regulators have earned a reputation, whether rightfully or not, as some of the cryptosphere's ultimate enemies. The newest commissioner on the U.S. Commodity Futures Trading Commission (CFTC), Dan Berkovitz, is adamant that should not be the case.
"The CFTC wants to see innovation. We are pro-innovation. We don’t have an anti-crypto or an anti-blockchain attitude," Berkovitz told BLOCKTV this week in his first interview since being sworn in as one of the five commissioners in September. "We want to facilitate innovation and see the more efficient ways that cryptocurrency or blockchain can bring to the market and bring benefit to the people. Ultimately, the markets are here for the benefit of the people that they serve, not for the benefit of the market itself. We have a forward-looking attitude and want to see greater efficiency and new technologies."
Berkovitz stressed that the CFTC doesn't see itself as the boogeyman it is so often portrayed to be, alongside the U.S. Securities and Exchange Commission (SEC), by many in the crypto ecosystem.
"We aren’t out to get new technology or preserve any of the old way or anything like that," he noted. "But we have an absolute responsibility to protect the integrity of prices on all commodities in the market and have an obligation to protect the crypto markets themselves from fraud and manipulation and to protect the American people from fraud and manipulation."
"We are out to get the bad guys, we aren’t out to get the good guys," said the former CFTC General Counsel, who was nominated by President Donald Trump after a stint in the private sector at DC-based WilmerHale law firm.
"The CFTC wants to see innovation. We are pro-innovation. We don’t have an anti-crypto or an anti-blockchain attitude."
One of the most intriguing matters currently awaiting a CFTC decision is the Bakkt Bitcoin futures trading platform. The CEO of ICE, the parent company of the New York Stock Exchange and Bakkt, Kelly Loeffler, announced on Tuesday that the launch of the platform will be postponed by six weeks to January 24, 2019. She explained among other things that "on the regulatory front, we continue to work closely with the CFTC as they conduct their thorough review of the Bakkt™ Bitcoin Daily Futures contract and the Bakkt Warehouse. These products represent a critical shift in the evolution of crypto markets toward more accessible, useful, and regulated instruments."
The CFTC didn't release any official response, but Berkovitz told BLOCKTV: "At this time we are currently in discussions with Bakkt and do not have a definitive date of any action."
Much of the criticism towards the CFTC, and the SEC, has been that they don't truly understand blockchain technology and aren't keeping up with the constant innovation. Berkovitz accepted that this is a valid point, but believes the CFTC is making a real effort to close the gaps.
"I'm sensitive to that concern. I've been in and out of government myself so I know that we in government aren’t at the cutting edge. People in the private sector, people that are developing the technology, people that are providing the resources and funding to promote it and the people in the frontlines are much more attuned and aware of the exact intricacy of the technology. We have to learn and in some sense we are playing catch up continuously."
"We are out to get the bad guys, we aren’t out to get the good guys."
The commissioner said LabCFTC, the agency's hub for engagement with the fintech innovation community, was set up with exactly that in mind.
"I think it is a legitimate point to raise that we may not always be fully aware, but that is why we have the initiative of LabCFTC," he noted. "We encourage people and firms to come in and explain their technology so we can understand what they do and they can understand how our regulation may affect them."
Berkovitz elaborated on the challenges regulators face with the arrival of a new technology.
"In financial markets there is continuous regulation and numerous new products. As we are seeing, and what the SEC is seeing, and as this industry is finding out, is how do rules that were established a long time ago with certain flexibility and parameters apply to a new technology. Sometimes it is not simple, but we try our best to address that."
Berkovitz said the CFTC is always keeping tabs on the different markets it regulates, but that the agency can't make its decisions based on how they will affect trading.
"We watch the markets and we watch significant daily fluctuations and watch the volatility of this market as well as all our other markets. This market is no different than oil or whatever in that respect," he claimed. "We are continually tracking the markets to ensure that where there is more volatility it isn’t due to fraud or manipulation or some artificial cause and try to understand and make sure that the markets are functioning. We can’t base our regulatory actions, and don’t, on a daily movement here or there. We follow the markets to ensure there is no improper force in the market, but we don’t try to adjust our regulation not to make the market go one way or another."
SEC-CFTC comparison. BLOCKTV.
Berkovitz explained the differences between the CFTC and SEC, which in the world of cryptocurrency seems to be especially confusing.
"People have a difficult time understanding why there are two of these market regulators and the line between securities and commodities and this relates to a series of issues going back to the founding of the CFTC," he said. "We used to be just agricultural commodities and it was pretty clear what the CFTC regulated. But then came along financial derivatives and interest rates and futures and financial commodities and future contracts and indexes based on equity prices and then the jurisdiction line between the two agencies became a lot more complicated."
"Now with tokens and cryptocurrency and how they are created and what they are used for, is it a security or is it a commodity, that threshold question becomes very important as far as agency jurisdiction."
Berkovitz, who before his appointment as commissioner served as vice-chair of the American Bar Association Committee on Futures and Derivatives, said there is an ongoing dialogue between the agencies, but that ultimately it is the SEC that has the primary responsibility to decide whether something is a security or not.
Berkovitz said the CFTC has made a significant long-term commitment to blockchain in terms of personnel resources and setting up LabCFTC, but that staying at the forefront of the technology is far from simple.
"There are developments in this field that are very rapid and there is a lot of entrepreneurship and innovation and I think the technology is still in its formative stage and we haven’t seen all the potential applications and how it is going to be used," he explained. "Until somebody comes to us with an actual product that they need some kind of registration for, or permission to license them, or exempt them, or not to do anything, we are still in that sense in a reactive mode. But we are trying to stay ahead of things enough so that when it is time to react we are not caught too flat-footed and we can respond in a timely manner."
Berkovitz is well aware that the CFTC's every move is being dissected and scrutinized, but insists the agency is completely focused on promoting law-abiding innovation without prejudice or preference.
"We are not a chooser. We don’t say we should promote this technology or that we should promote this cryptocurrency versus another," he said. "We don’t pick winners and losers, but if there is a winner out there we certainly need to make sure there are no unnecessary roadblocks to impede its development and use. There have been lots of innovations in the financial markets, a lot of products that when they were first developed people didn’t really foresee the extent to which they could be used. And there are also things that people have brought to the market and have been spectacular failures. We shouldn’t be picking the technology that we think is going to win."
"We don’t go and say we think crypto or Ethereum or Ripple is going to be the best out there. We are sort of technology neutral."
"As long as they meet our standards, our job is to expeditiously approve it so we aren’t a roadblock to the market deciding if it is viable."