Why Crypto Regulation Puts CFTC In Crosshairs With SEC


Crypto regulation is inevitable, that seems to be the message coming from U.S. regulatory agencies, government officials, and large players in the space. Once they have understood this, their factions push for what they consider will be most beneficial for the nascent asset class.

This led to a political conflict between the top U.S. financial regulatory agencies, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Rostin Behnam, Chairman of the CFTC, was part of a Congressional hearing that might intensify the conflict.

Behnam discussed the Digital Commodities Consumer Protection Act (DCCPA), a bill intended to operate as a framework for crypto regulation. The CFTC Chair emphasized the “unique characteristics” of the nascent asset class and the importance of providing the sector with a “comprehensive” regulatory regime.

The CFTC Chair believes that there is speculation, high-leverage trading, no bankruptcy protection, conflict of interest, and other alleged risks that impact crypto investors. Behnam referred to the collapse of Three Arrows Capital (3AC) and the subsequent contagion that brought down a lot of crypto companies.

In order to stress his point on the need to implement crypto regulation, the CFTC Chair said:

One lesson from the recent fallout is that leverage, interconnected markets, and contagion can wreak the same havoc in the digital-asset ecosystem that they do in our traditional financial markets, particularly in the absence of appropriate regulation.

Crypto regulation ETH ETHUSDT BTCUSDT
ETH’s price moving sideways on the 4-hour chart. Source: ETHUSDT Tradingview

CFTC Better Equipped Than The SEC To Enforce Crypto Regulation?

In this scenario, Behnam highlighted the experience and expertise of the CFTC to become the main crypto regulator. The intervention of the CFTC could allegedly provide crypto investors with more transparency, security, and “integrity” about the entities they are dealing with.

In addition, the CFTC Chair claims the regulator already has experience adapting its “oversight capabilities” to new markets and sectors. Several CFTC Chair has proposed a friendlier approach to the nascent asset class rather than the enforcement approach applied by the SEC.

Behnam also highlighted the action brought by the regulator against the illegal crypto activity. Their success on this topic could improve if the CFTC gains “full visibility” over the nascent asset class. This will be accomplished if the DCCPA comes into law.

The regulators made progress in hiring experts and staff to enforce the new crypto regulation:

The Agency has developed a deep understanding of this novel market and the underlying innovations that fuel it, hiring specialists, forming internal task forces and working groups, leveraging public-private partnership through the work of CFTC Advisory Committees, and most recently restructuring the CFTC’s financial technology innovation hub into the Office of Technology Innovation.

Crypto All For The CFTC To Step In As Lead Regulator

Head of Policy at the Blockchain Association Jake Chervinsky analyzed Behnam’s speech and the upcoming DCCPA bill as the regulator attempts to gain legislative approval to oversee crypto markets. The legal expert clarified that the new bill would also provide the regulator with authority over brokers, custodians, exchanges, and dealers.

In that sense, Chervinsky said the following in the name of the Blockchain Association:

Blockchain Association fully supports granting the CFTC exclusive jurisdiction over crypto spot markets & we applaud Sen. Debbie Stabenow, Sen. John Boozman, & their talented staff for moving this proposal forward.

However, the legal experts pointed to some issues with this bill, such as its definition of a “digital commodity” that might contribute to the current feud between the CFTC and the SEC, its vague position on decentralized finance, and its definition of a digital commodity platform. Chervinsky added:

Despite these issues, it’s exciting to see Congress move forward on a crypto bill that gets so much right. There’s nothing here that can’t be fixed with a few good tweaks. It’s also worth recognizing the excellent process that Senate Ag has run so far. Instead of trying to rush something into law quickly (as sometimes happens), the bill’s sponsors are taking their time to understand the issues.


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