In a February 9, 2022 hearing before the Senate Agriculture Committee, which oversees the derivative markets, Commodity Futures Trading Commission (“CFTC”) Chair Rostin Behnam argued to lawmakers that his agency is in the best position to oversee crypto spot markets in the U.S. and requested an additional $100 million in funds. After acknowledging that the CFTC’s enforcement powers are currently limited to using its fraud and manipulation authority in the digital asset space, Behnam recognized that the future challenges are likely to extend beyond the confines of the Commodity Exchange Act, stating: “[T]he digital sector now demands more and more of the CFTC’s attention and time, which I believe necessitates additional resources to adequately address these issues. We are past the stage where digital assets and decentralized financial technologies are a research project, sandboxing what may come in the future. The issues are at the front and center of our thinking at the Commission in addition to our traditional regulatory, oversight, and enforcement responsibilities.” Behnam emphasized that the CFTC is well-situated to play an increasingly central role in overseeing the cash digital asset commodity market, as the CFTC regulates derivatives markets such as bitcoin and ether futures (the SEC, by contrast, oversees tokens believed to be securities).
This is not the first time that Behnam has asked lawmakers to expand the CFTC’s powers. His testimony on February 9, 2022 reiterates the stance he took before Congress in October 2021, when he expressed his view that the CFTC should be the main cryptocurrency regulator, pointed out that nearly 60% of cryptocurrencies in the $2.7 trillion market are commodities, and requested greater statutory authority to become “the primary cop on the beat”.
At Wednesday’s hearing, several industry participants voiced their support for broader CFTC authority over the cash digital asset commodity market. Perianne Boring from the Chamber of Digital Commerce highlighted the need for a “lead regulator” in the digital asset space and told the committee, “We believe the CFTC is well positioned to assume that role.” Likewise, Sam Bankman-Fried, the founder of cryptocurrency trading platform FTX, testified, “I think the CFTC is in a very strong position to do this. I would love to see that jurisdiction expand to be able to provide federal oversight for the cash markets similar to how they do for derivatives markets today, both to provide consumer protection, protect against systemic risks, and provide a clear and consistent framework for the industry.”
This support is a departure from cryptocurrency lobbyists’ previous objections to federal oversight. In particular, industry participants have expressed concerns that the SEC’s rules, which apply to traditional securities and contain significant disclosure requirements and liability for issuers, may be too onerous from a compliance standpoint. The industry’s endorsement of the CFTC as primary regulator in the digital asset space is certainly a watershed moment in this long-ranging debate.
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Blockchain technology utilizes a distributed digital ledger to record and track information, and can be leveraged to gain transparency and certainty in transactions ranging from cryptocurrency to supply chain tracking. This blog provides information on the legal developments surrounding implementation of blockchain technology, with an initial focus on the financial services sector.