A proposal in the U.S. Senate to place regulation of the two largest cryptocurrencies within the Commodity Futures Trading Commission (CFTC) seemed, when I first read about it, like a gift to the industry because the CFTC is a much smaller, much less powerful agency than, say, the Securities and Exchange Commission. The crypto industry was pushing for the CFTC.
But now that I’ve read more about it, it seems as if the CFTC might not be the worst place to put responsibility for an industry that has been like the Wild West, with no controls and plenty of ways for big players to screw small investors — many of whom have lost life savings in the crypto market.
The bill joins an increasingly crowded field of legislative proposals for regulating the trillion-dollar digital asset marketplace, a priority that has taken on greater urgency after the recent implosions of several high-profile crypto projects devastated tens of thousands of retail investors. Leaders of the House Financial Services Committee are working with the Treasury Department on a bill to subject issuers of stablecoins to banklike oversight, though they scrapped plans for a speedy markup late last month over ongoing differences with the draft.
And Sens. Cynthia M. Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) in June unveiled what they billed as a comprehensive plan to regulate the industry. Their proposal handed primary responsibility for the industry to the CFTC, but unlike the bill from Stabenow and Boozman, it would make it optional for crypto exchanges to register with the agency.
Both bills would allow the CFTC to assess fees on crypto industry players to fund an expanded budget. The agency, roughly a sixth the size of the SEC, already is tasked with overseeing a swath of financial markets, from grain and oil futures to more complex products.
Crypto interests for months have been lobbying lawmakers to empower the CFTC as their top regulator. They say the regulator would give them friendlier treatment than the SEC, where Chair Gary Gensler has taken an aggressive public line toward the industry.
CFTC Chairman Rostin Behnam likewise is advocating a bigger role for his agency. In a speech at the Brookings Institution last month, he said federal and state regulators sharing responsibility in a “patchwork blanket” approach “is increasingly proving inadequate” as the crypto market rapidly evolves.
An SEC spokesperson declined to comment on the bill; the CFTC did not respond to a request for comment.
Todd Phillips, director of financial regulation and corporate governance at the liberal think tank Center for American Progress, called the Stabenow-Boozman proposal “a great bill.”
“It provides a regulatory structure around crypto commodities without taking away authority from other agencies, like the SEC,” he said in an interview. “It specifically requires the registration and regulation of brokers, puts in place investor protection rules and puts up a framework around this market to ensure investors aren’t taken advantage of.”
We’ll just have to wait and see how the final legislation, if it’s passed at all, is written.