Two Things To Know About The Crypto Industry's First SRO

In 2013, the Winklevoss twins, among the earliest investors in bitcoin, filed an application with the SEC for a bitcoin ETF. The federal agency rejected their application. The brothers have filed multiple proposals since then but have been rejected each time. 

In their latest bid to convince the SEC, Cameron Winklevoss and Tyler Winklevoss recently announced the launch of Virtual Commodities Agency (VCA), a self-regulatory organization for the cryptocurrency industry. “We believe adding a layer of oversight on virtual commodity cash markets, in the form of self-regulation, is important for consumer protection and to ensure the integrity of these markets,” the twins stated in a blogpost. The association’s launch is a response to SEC concerns outlined in a letter earlier this year. Several concerns in the letter relate to security and internal price setting mechanisms at cryptocurrency exchanges. (See also: Should Cryptocurrency Exchanges Self-Regulate?)

The effort to self-regulate crypto exchanges has been welcomed by regulators. “Ultimately, an independent and empowered SRO-like entity could have a meaningful impact on the integrity and credibility of this young marketplace. Today’s announcement is a positive step towards that realization,” stated Brian Quintenz, a commissioner with the CFTC. (See also: Winklevoss Twins Unveil Proposal For Self-Regulation of Cryptocurrency Markets.)

Here are two things that you know about the Winklevoss' self-regulatory organization. 

The principles and rules which govern the SRO have been formulated by participants in the cryptocurrency industry, as opposed to being established by regulators. The VCA’s founding members are prominent cryptocurrency exchanges such as Bitstamp and Bitflyer USA. The National Futures Association (NFA) is a similar organization formed by market participants during the early days of futures trading. Much like the cryptocurrency ecosystem today, the futures market was overrun by scams and scandals then. The NFA works in conjunction with the CFTC to establish rules and police the futures markets.  

The VCA’s website states that it will not “provide regulatory programs for security tokens or security token platforms.” Instead, the organization will disseminate sound practices for the functioning of entities within the cryptocurrency ecosystem. Among these practices is the establishment of an information-sharing mechanism between cryptocurrency exchanges for “the purposes of marketplace surveillance with other members and with regulated exchanges and trading platforms that list products based on virtual commodities.” The organization also aims to make market data pertaining to pricing and trading of cryptocurrencies transparent. 

Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.