Chinese Regulators vs US Regulators – Digital Asset version

After reading the Bloomberg piece that China plans to block cryptocurrencies from being traded on exchanges but not via OTC, I wanted to know why Chinese regulators and US regulators have such opposing views.

In the US, the Commodity Futures Trading Commission (“CFTC”) and the National Futures Association (“NFA”) have worked hard to eliminate OTC trading in favor of exchange-based trading.  Even the markets that remain available to be traded OTC now have to report all their client and trade data to a centralized clearing entity.  And now we hear that in China the regulator will allow for OTC trading but not allow the exchanges to offer cryptocurrencies.

I am going to use inductive reasoning here which I normally despise, but I do not have the underlying facts from the Chinese regulators to build a case for allowing OTC trading.

Cryptocurrency (or digital assets) are not regulated by any major economy regulator because the knowledge is not within the walls of the regulators to understand cryptocurrencies and to therefore make any rules about them.  Additionally I would add that a significant aspect to cryptocurrencies is that they are intended to be un-regulatable; the inventor(s) of Bitcoin were specific in their desire to create something that was above sovereign regulation.

I suspect that in China the regulators have a better grip on controlling the OTC brokerages (though my experiences operating in the FX industry for the last 10 years including partnerships with significant Chines OTC brokers tells me otherwise), than on cryptocurrency exchanges.  And what we have seen in the crypto space is the vulnerability of exchanges; even large ones like Mt Gox and even Bitfinex.  Whereas Chinese OTC brokerage firms have at least been around for a number of years and are pretty savvy when it comes to security of data.  I just searched for news on security breaches and missing funds at Chinese OTC brokerage firms on a number of industry portals and found nothing.

So even though one country is pushing cryptocurrency flow into the OTC brokers, and the other is pushing all OTC trading onto exchanges, the goals of the regulators is the same.  Get the trading into a place where they have a level of understanding and control.


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