Brian Quintenz, a Republican commissioner at the CFTC, said in an interview in London earlier this week that such venues will have to be vigilant if they list contracts.
They would “take on a significant but a very, in my view, positive role in ensuring manipulation is not occurring in how they calculate the prices for these futures,” he said. That “can bring some regulatory oversight on their own” to bitcoin, he said.
There are other ways the new futures could spur more vigorous oversight of the cryptocurrency. The contracts, for example, could make it easier to create an exchange-traded fund tied to bitcoin -- even after a previous attempt was knocked down.
That could enlist the SEC. In March, the agency rejected a bitcoin ETF proposed by Tyler and Cameron Winklevoss -- the co-creators of the Gemini exchange -- saying necessary surveillance-sharing agreements were too difficult given that “significant markets for bitcoin are unregulated.”
On Thursday, a top SEC official weighed in. David Shillman, associate director in the agency’s division of trading and markets, said a strong bitcoin futures market could make the regulator more comfortable approving bitcoin ETFs.
Many mainstream investors and their brokers -- lured by bitcoin’s meteoric rise this year -- wouldn’t mind some government oversight to head off potential abuses.
“The problem with the futures contracts is they are regulated derivatives that are based off underlying trading in unregulated markets,” Richard Johnson, a market-structure analyst at Greenwich Associates who specializes in blockchain, said before Friday’s announcement. “That does create a potential problem.”
Ever since digital currencies began emerging, U.S. regulators have faced a big dilemma: The laws that empower watchdogs and delineate their areas of responsibility were written decades ago when money was minted on paper, companies turned mainly to the stock market for capital, and commodities came from farms, mines or wells. Many authorities have held back, studying what to do.
CME Chief Executive Officer Terrence Duffy sped up that process in October when he disclosed his plan for futures. His announcement of an imminent product caught some CFTC officials by surprise, according to three people with knowledge of the matter.
Exchanges like CME, which profit from increased trading volumes, can approve new futures contracts themselves. Still, CME and Cboe conferred with the CFTC while crafting terms for their products. The agency said they made a number of adjustments. CME, for example, increased its margin requirement for the contracts.