"In short, the currently applicable regulatory framework for cryptocurrency trading was not designed with trading of the type we are witnessing in mind," SEC Chairman Jay Clayton said in prepared remarks.
Both agencies late last year smoothed the way for the trading of virtual currencies but in December also issued harsh warnings that smaller investors were the likeliest to jump into the untested waters and are the most at risk for fraud.
Another challenge, CFTC Chairman J. Christopher Giancarlo said Tuesday, is that some of the players in crypto currency don't fall into the same regulatory definition as companies that may trade in foreign currencies.
"Many of the internet-based cryptocurrency trading platforms have registered as payment services and are not subject to direct oversight by the SEC or the CFTC," Giancarlo warned.
Giancarlo pointed out that digital currencies do not yet comprise a sizable part of the economy. He noted that, as of Feb. 5, the total value of all outstanding bitcoin was about $130 billion based on a Bitcoin price of $7,700. That cumulative bitcoin sum is less than the market value of all the outstanding shares in McDonald's.
The agency head put the total outstanding value of all virtual currencies at about $365 billion. By comparison, the total value of gold traded in the world is about $8 trillion.
Many Americans who have bought digital currency expecting huge gains may be trying to ride out the roller-coaster valuations and the recent plunge, Giancarlo said.
"And in fact what we hear a lot of is people buying and holding. If you go on the Twitter universe, you'll see a phrase HODL, which means hold on for dear life," he said.
Virginia Democratic Sen. Mark Warner became a millionaire by pioneering the cell phone business in the 1980s, a time when everyone was sure that he was wrong and cell phones were going to be a small business.
"I think we're looking at the same kind of transformation about to take place and we are going to have to wrap our arms around it," he said during the hearing.