By Dave Michaels and Gabriel T. Rubin, The Wall Street Journal
WASHINGTON—Investors are frantically trying to learn everything they can about bitcoin—and so are regulators.
Furious trading in cryptocurrencies is testing many in the Trump administration who are eager to embrace financial innovation, after nearly a decade of tighter clamps on risk-taking put in place after the 2008 financial crisis.
The Commodity Futures Trading Commission, the agency with closest oversight of bitcoin trading, began the year by launching an in-house lab to encourage advances in blockchain, the technology that underpins digital currencies. Yet the regulator recently sounded an alarm on bitcoin itself, noting most exchanges are completely unregulated while the cryptocurrency is prone to wild price swings and potential flash crashes.
The CFTC has labeled bitcoin a commodity, but as with other commodities, the agency mostly lacks jurisdiction over the primary market: It regulates corn futures contracts but not the buying and selling of corn itself, for instance. As a result, bitcoin exchanges don’t have to tell participants how they operate, such as whether they offer preferential access to certain traders.
“A lot of people, retail traders in particular, have gotten used to securities laws and commodities laws protecting them,” said Kipp Rogers, a former proprietary trader who is now a blogger and researcher. “And so they don’t just even know what to be on guard for.”
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