Diving a bit deeper into Clayton’s testimony:

Clayton’s testimony begins by restating the purpose of the SEC and CFTC surrounding the protection of market participants. Their goal is to establish a “regulatory environment for investors and market participants that fosters innovation, market integrity and ultimately confidence.” They also briefly describe the recent rise of the cryptocurrency and ICO markets, that have attracted new investors. Clayton also establishes the tone of the hearing is not negative:

“ To be clear, I am very optimistic that developments in financial technology will help facilitate capital formation, providing promising investment opportunities for institutional and Main Street investors alike. From a financial regulatory perspective, these developments may enable us to better monitor transactions, holdings and obligations (including credit exposures) and other activities and characteristics of our markets, thereby facilitating our regulatory mission, including, importantly, investor protection.” — Jay Clayton, Chairman SEC

Clayton then continues to address main-street investors in regards to ICOs. He establishes that 0 ICO’s have registered with the SEC to date. Security risks are also acknowledged, highlighting the recent $500M XEM hack on a Japanese exchange, and the fact that ~10% of ICO proceeds have been lost in similar attacks. They also provide several investor bulletins and messages that the SEC has already given to investors, with the purpose of educating retail investors.

The next section dives into issues surrounding the usage of cryptocurrencies to facilitate the trade of ICOs. In my opinion, they seem to be discussing exchanges like Poloniex, Bittrex, Binance and other familiar cryptocurrency exchanges. None were named specifically however. They do seem to take issue with the word exchange: “Many trading platforms are even referred to as ‘exchanges’”. The fact that most of these exchanges are regulated as MSBs is mentioned.

“ the currently applicable regulatory framework for cryptocurrency trading was not designed with trading of the type we are witnessing in mind. [..] we are open to exploring with Congress, as well as with our federal and state colleagues, whether increased federal regulation of cryptocurrency trading platforms is necessary or appropriate. We also are supportive of regulatory and policy efforts to bring clarity and fairness to this space.” — Jay Clayton, Chairman SEC

The above quote perhaps is the most concerning part of the hearing, and likely the most relevant piece of information for traders. This seems to imply that there will be focus put onto the exchanges. Enforcement actions could lead to de-listings, which leads to reduced liquidity, and ultimately negatively impacts prices. However, a positive development is they do seem to be well-aware of the fact that the current MSB framework is insufficient for crypto-exchanges. I would hope retroactive enforcement would be minimal.

Also interesting to speculators may be the statement regarding ETFs and other financial products. It seems it will still be awhile until we see cryptocurrency backed ETFs. Concerns were cited surrounding liquidity, valuation and custody of holdings.

The statement continues to discuss recent ICO’s again, and re-establishes that the SEC is weary about the trend of ICO’s clinging to arguments surrounding “form over substance”. Essentially, if an ICO is marketed in a way that makes it seem like it is a security (promising returns), then it likely is a security. They specifically call this trend disturbing.

Finally, a section on enforcement discusses recent enforcement actions that have taken place, and establish that they will continue to take such actions. Interestingly, they discuss concern around recent public companies throwing around blockchain developments or distributed ledger tech. I imagine a reference to things like the Kodak ICO and maybe even Overstock to an extent, among others: