The former Securities and Exchange Commission (SEC) chairman Arthur Levitt discussed the evolving regulatory landscape for bitcoin companies and the commission’s ability to keep up with fast-paced technological changes in a wide-ranging interview on Bloomberg TV yesterday.
Levitt, who is the SEC’s longest-serving chairman, became one of the highest-profile figures from the world of financial regulation to enter the cryptocurrency space when he announced that he was joining BitPay and Vaurum as an advisor two days ago.
In the Bloomberg TV interview, Levitt said he had been approached by six bitcoin companies before deciding to join BitPay and Vaurum. He said he had become “fascinated” by bitcoin as he learned about it and he highlighted the “irreverent” and “smart” entrepreneurs leading the bitcoin startups he’s advising.
The former SEC supremo, whose eight-year tenure there began in 1993, underlined the importance of regulatory compliance for bitcoin companies as a legal framework developed around digital currencies in the US:
“I think the reason they approached me is because, I think, number one, they think having a former regulator probably looks good. But I also believe that a company that has transparency and passes regulatory scrutiny is going to do much better than a company that is fighting regulators … So I don’t buy the libertarian argument that we don’t need any regulation.”
Lawsky ‘has right balance’
Levitt praised New York State’s Superintendent of Financial Services, Ben Lawsky, for the way he has handled the BitLicense proposal.
Lawsky recently won a positive response from the bitcoin community after he declared software developers and miners generally exempt from the regulatory framework being devised in New York, although many still have doubts about some areas of the proposal.
Levitt pointed out that Lawsky’s move, along with his call for public comments on the BitLicense, showed that he understood the “fine line” between protecting the investing public and allowing new technologies the time and space to flourish.
“There are regulators and there are regulators. By that I mean a really good regulator is one who understands the balance between protecting the public and stifling an exciting and different new technology. I happen to think that Ben Lawsky has the balance right.”
Levitt currently sits on the board of financial media heavyweight Bloomberg LP and online stock brokerage Motif Investing. He is also an advisor to top investment bank Goldman Sachs, trading giant Knight Capital and compliance firm Promontory Financial Group.
Benefits of bitcoin
The potential of bitcoin’s block chain to reshape contracts and national currencies, as well as its ability to facilitate low-cost global transactions, was also given airtime by Levitt.
Levitt pointed to Argentina, which is experiencing a rapid devaluation of its peso in relation to the US dollar, as an example of a place where bitcoin could show its full potential.
“If you’re in Argentina today and your currency is being devalued by the second, virtually, and you can’t send money out of Argentina, you can use bitcoin electronically to transmit it over the web from Argentina to New York or to Berlin. So for third-world countries or countries with uncertain currencies, it’s a tremendous opportunity for them.”
The biggest risk for bitcoin’s success, Levitt said, was its extremely high volatility. The former top financial regulator said mass adoption of bitcoin wouldn’t happen while wild fluctuations in the price of a bitcoin remained.
“The greatest problem that bitcoin has today is its volatility. Unless they address that volatility, it’s going to be difficult getting people to have trust, and that is essential to any good monetary system,” he explained.
Regulators playing catch-up
Levitt also discussed the SEC’s ability to stay on top of technological progress in general, in the wake of a new study from the University of Chicago that found certain institutional investors could obtain company filings before the general public using high-speed data feeds. These investors can then profit from the information by feeding it into computerised trading algorithms, the study found.
Regulators would always be “slightly” behind “wrongdoers” or those seeking an advantage over other market participants, he said, and there is nothing alarming about that state of affairs. However, when the regulator is too far behind, that’s when a serious problem has arisen.
“You have to first assume that the wrongdoers or people who want an edge are always going to be slightly ahead of the regulators. When they’re way ahead of the regulators, then the system is out of kilter. But things like this happen.”
Over his eight years at the helm of the SEC, Levitt developed a reputation as a champion of the man on the street. As chairman, he warned of the possible problems arising from auditors who also did consulting duties for clients, and he was proved right by the collapse of Enron and Worldcom, according to Bloomberg Businessweek.
Levitt alluded to his interest in defending everyday investors when he described the problems the markets could face if the SEC didn’t address the unfair technological advantage some investors held over others:
“The individual will think that the big guy, the big institution, has every advantage and we, the individual investor, have to take a backseat to everybody else. And that’s bad. If we don’t have markets that are trustworthy, we don’t have markets.”