Bitcoin bubble burst raises concerns from lawmakers, regulators about investors

Senate panel questions SEC's Clayton on cryptocurrency's staggering rise and fall, which has dwarfed the stock market drop.
FEB 06, 2018

Lawmakers and financial regulators expressed worry Tuesday that no matter how volatile the stock market becomes, an investment in virtual currencies could be riskier. Members of the Senate Banking Committee cited the swift rise and sharp fall of bitcoin in a hearing focused on oversight of digital money by the Securities and Exchange Commission and the Commodity Futures Trading Commission. "Bitcoin's 1,000% percent rise last year and 60% decline last month makes yesterday's Dow Jones record point drop look like a rounding error," said Sen. Sherrod Brown, D-Ohio, ranking member of the panel. "But that growth has shown us the intersection of ingenuity and, too often, greed. Sometimes it appears that scam artists and hackers may understand more about the technology than most market participants. That deeply concerns me." Sen. Joe Donnelly, D-Ind., asked SEC Chairman Jay Clayton and CFTC Chairman J. Christopher Giancarlo — the hearing witnesses — what they would tell investors who think they can fund their retirement through an investment in bitcoin or initial coin offerings. "Pumping all of your money into a disruptive technology has a very high likelihood of not working out for you as an individual," Mr. Clayton said. "There will be winners, but there will be many losers. That's the way it works." The SEC has put out several statements about the risks associated with bitcoin and initial coin offerings. Committee Chairman Mike Crapo, R-Idaho, noted that last year bitcoin zoomed from a valuation of $1,000 in January to nearly $20,000 in December, and now has fallen to about $6,900. "Over the last year, many Americans have become increasingly interested in virtual currencies, especially given the meteoric rise in valuation and recent fall of bitcoin," Mr. Crapo said. In response to a question from Sen. Tom Cotton, R-Ark., about why bitcoin has dropped so drastically over the last month, Mr. Clayton simply said, "I don't know what drives volatility." But the SEC chief expanded on the movements of bitcoin in a discussion with reporters after the hearing, including that the cryptocurrency doesn't act like other investments. "I don't see it correlated with anything else," Mr. Clayton said. "Think about what that means as an asset class." Mr. Clayton told Mr. Crapo during the hearing that he would be open to legislation that would expand the regulators' jurisdiction to better regulate digital currencies. "We're already together working on it," Mr. Clayton said about SEC talks with the Treasury Department. In response to questions about Wall Street's steep drop on Monday, Mr. Clayton said market mechanisms reacted well to the highest trading volume since November 2016. "There was nothing to indicate that any of our systems didn't function as they were expected to function yesterday," he said.

Latest News

JPMorgan's record Q2 profit rides trading and dealmaking surge
JPMorgan's record Q2 profit rides trading and dealmaking surge

Investment banking fees rose 30% on a wave of IPOs and megadeals, led by the largest public listing on record.

Feathery raises $30 million to power AI-driven RIA operations
Feathery raises $30 million to power AI-driven RIA operations

Series A funding from Portage, Bain Capital, and other investors will fuel data tools designed to speed advisor transitions and cut onboarding delays across wealth firms.

Wealth Enhancement deepens East Coast presence with Wealthshield deal
Wealth Enhancement deepens East Coast presence with Wealthshield deal

The Minneapolis-based RIA aggregator is adding two North Carolina practices managing nearly $1 billion, pushing its total client assets past $158.2 billion.

The real reason I expanded my RIA to Hong Kong (it wasn't for the AUM)
The real reason I expanded my RIA to Hong Kong (it wasn't for the AUM)

As markets disintegrate, the value of on-the-ground, first-hand research through "intimate knowledge acquisition" is skyrocketing.

Caprock expands Texas footprint with $4B Venturi acquisition
Caprock expands Texas footprint with $4B Venturi acquisition

Deal brings 10 advisors and deeper family office reach to Austin market.

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income