Commodity Futures Trading Commissioner Brian Quintenz said some type of regulation in the crypto market is good.
"Regulation can add to credibility," Quintenz told CNBC on "Closing Bell" on Wednesday. "And I think the participants in this market want a credible marketplace."
"Everyone that trades these products needs to know that there is no federal oversight over these platforms," said Quintenz, who was in Washington, D.C., on Wednesday for the third annual DC Blockchain Summit. "And I would agree with the SEC that some type of federal oversight is a good idea. Ultimately, it's for Congress to decide that."
Earlier in the day, the Securities and Exchange Commission said it will now require digital asset exchanges to register with the agency. The securities laws surrounding cryptocurrencies have been unclear in recent months, allowing firms to rely on self-disclosure and making fraudulent exchanges easier to execute.
The news quickly sparked sell-offs in several popular cryptocurrencies, as some investors feared a tightening regulatory environment could inhibit future trading.
Bitcoin, the largest cryptocurrency by market cap, fell below $10,000, or 10 percent, after the news from the SEC. That's nearly 50 percent down from its mid-December highs of around $19,500.
Quintenz said the SEC takes action against unregistered ICOs, while the CFTC has authority over spot trading.
"We don't have oversight authority," he said. "That's kind of a hole in the law, a lack of jurisdiction."
He said while the government will likely always participate in regulation in some form, it would "behoove investors" to come together and form some type of independent oversight committee — before Congress makes a decision as to who should regulate spot currencies and how.
"It's good business," Quintenz said.
— CNBC's Thomas Franck contributed to this report.