CFTC Control Bill Would Reshape Crypto

When Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (DN.Y.) revealed that their bipartisan bill creating a regulatory framework for cryptocurrencies would define most digital assets as commodities rather than titles, the response was predictable.

The Commodity Futures Trading Commission (CFTC) was ecstatic and the Securities and Exchange Commission (SEC) appalled.

See also: Senate Crypto Bill Debuts and Crypto Industry Gets Big Gains

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The two have elbowed each other as the political debate over who should regulate the crypto industry has come to a boil over the past year.

SEC Chairman Gary Gensler, an even more aggressive regulator than his predecessor Jay Clayton, has called the crypto industry the “Wild West of finance” and believes that almost all tokens are securities. Among other things, he attacked cryptocurrency exchanges and lending platforms, demanding that they register as brokers and comply with agency regulations.

CFTC Chairman Rostin Behnam was all smiles, telling reporters that Lummis and Gillibrand had done “a very good job” in drafting the Responsible Financial Innovation Act, adding “one of the most The tricky things that we’re going to have to do – and I think they’re approaching this very well – is deciphering between a commodity and a security.

On the other hand, Gensler was politically correct, telling an audience at The Wall Street Journal’s CFO Network Summit on June 14 that he wanted to speak to senators before commenting publicly, CoinDesk reported.

Read more: SEC Chairman Steps Up Crypto Crusade, Sends Message to CFTC

He then said he wanted to “continue to protect” the SEC’s role in overseeing corporate fundraising from the public — which means keep doing what it’s been doing — before essentially warning that the Lummis Gillibrand Bill would encourage stock exchanges, money market funds and other public funds. companies to seek political support to move “outside the regime” of the SEC’s regulator.

His remarks more or less amounted to a warning of a complete regulatory meltdown in financial markets.

Under a CFTC regime

This raises another question: what would the new regime look like if the CFTC – and the elated cryptocurrency industry, which wants to exit the SEC cup – were successful?

Both agencies would still have a role, but the CFTC would have “clear authority over applicable digital asset spot markets, which aligns well with their current jurisdiction over other commodity markets,” the senators said.

Read more: SEC, CFTC coordination may be the way forward for crypto regulation

This means that instead of just bitcoin and ether – which both agencies already agree are commodities – the CFTC would have control over most digital assets, with the SEC relegated to cryptocurrencies that offer the holder certain privileges shared by corporate securities such as dividends and liquidation rights. .

While the new bill would give the CFTC oversight of cryptocurrencies, it would not necessarily give it regulatory control of the crypto spot market — that is, an exchange where anyone, from a small retail buyer to an institutional investor, buys tokens for immediate delivery – but rather on futures and derivatives. Thus, Main Street investors would not have their purchases monitored by the CFTC, but the agency would have the power to monitor fraud and market manipulation.

See Also: Gensler Says SEC Considers Regulating Crypto Exchanges, Sharing Power With CFTC

That would be different from an SEC-regulated cryptocurrency market – which is more or less what exists now, as cash exchange Coinbase’s recent decision to register as a broker shows. While the agency encourages others to follow suit and isn’t too subtly threatening to start prosecuting those who don’t, its authority is unclear.

However, the agency would still have control over initial coin offerings (ICOs) — which it claimed and enforced as early as 2017, which is why they’re very rare now — and much of decentralized finance, or DeFi. .

So, with the CFTC, there would be a lighter hand on the regulatory accelerator – which is why the crypto industry is thrilled.

If Gensler’s agency ends up getting what it wants, however, expect much more aggressive enforcement.

What’s less clear is how this will all play out after the various federal agencies craft the proposed regulatory framework President Joe Biden ordered in an executive order in March. It’s scheduled for September. Either way, expect recent but influential crypto industry lobbying efforts to increase as September approaches and redouble thereafter.

See more: Crypto Industry Lobby Surpasses Its Weight Class

One thing this process will provide is a way for people to voice their opinions on the various options, as the agencies will likely be gathering public comment – ​​one Commerce Department agency already has one in place.

Public opinion will play a role in the outcome. And if the markets crater like they have this year and especially this month, the SEC will have more support on its side.

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CFTC Control Bill Would Reshape Crypto


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