Recent turmoil in the cryptocurrency industry has fueled debate over whether the Commodity Futures Trading Commission or the Securities and Exchange Commission should serve as the primary federal regulator of cryptocurrencies.
Answer: Both agencies should continue to exercise their regulatory powers over crypto assets and activities under existing laws, and any new laws should be enacted to limit the use of spot market crypto assets, i.e. those with immediate delivery. The CFTC should be granted exclusive authority over crypto assets traded for
complex web
Unfortunately, cryptocurrency regulation in the United States today involves many regulators, including the CFTC, the SEC, the Treasury Department's Financial Crimes Network, and many states. This complex web-to-web gap may have contributed not only to the recent collapse of FTX, but also the collapse of many other cryptocurrency players, including Celsius, BlockFi, and Voyager.
U.S. regulation of traditional securities such as stocks, bonds, and investment contracts is overseen by the SEC. The CFTC, on the other hand, has jurisdiction over derivatives (such as futures and swaps), including products, unless the products constitute securities.
The CFTC also has the authority to take enforcement actions against those who commit fraud in connection with commodity trading, even if they do not involve derivatives.
The CFTC has been upheld by the court, stating that the virtual currencies that constitute virtual currency are merely commodities, such as wheat, gold, and certain financial instruments, and that the CFTC's rules apply equally to derivative transactions in such virtual currencies. It is claimed that it will be done.
The SEC has also been supported by the courts, stating that investment contracts involving cryptocurrencies are subject to the jurisdiction of the SEC and that persons trading such instruments are subject to applicable securities laws and regulations, just as they would be trading in non-cryptocurrencies. They argued that they must comply with SEC rules. Investment contract securities.
FinCEN and states often regulate individuals who trade with the public in spot cryptocurrencies and buy and sell Bitcoin.
However, sometimes the boundaries between regulatory authorities are unclear. As a result, for example, four cryptoassets were recently listed as digital asset securities on SEC-regulated alternative trading systems, while the same cryptoassets were simultaneously traded on multiple state-regulated trading platforms as virtual currencies. There is.
It is widely known that the SEC has an ongoing lawsuit against Ripple and its founders related to the crypto asset XRP, which is referred to as a security. They settled an enforcement lawsuit with the same company claiming that it was currency. Cryptocurrency is never called currency.
Earlier this year, the SEC filed a lawsuit against three individuals who it said had illegally pre-empted and profited from 25 newly listed crypto assets on a trading platform, including at least nine of them. considered to be securities. The SEC did not indicate in its complaint what the other 16 crypto assets were.
There are numerous examples of the same cryptoassets receiving different regulatory treatment from different regulators in the United States.
CFTC should take the lead
Fortunately, there are three bipartisan-sponsored bills pending in Congress that would provide a path for the CFTC to become the primary federal regulator in the spot crypto space (where relevant crypto transactions are currency and no securities are involved).
Some argue that the SEC is a tougher regulator when it comes to customer protection and enforcement and should be the lead regulator in enacting new laws. Even before SEC staff created the SEC's first interpretation of any kind involving crypto assets in 2017.
However, the CFTC had already brought three enforcement actions against individuals who allegedly violated applicable laws and regulations regarding the trading of crypto assets.
Since then, the CFTC has become more active in the cryptocurrency space by taking enforcement actions against a number of big names in cryptocurrency companies for various alleged crimes, including Coinbase, Gemini, Bitfinex/Tether, BitMEX, and Kraken. We have further demonstrated this.
Additionally, cryptocurrency trading platforms around the world are combining trading of spot crypto assets with derivatives of such assets. To the extent that the CFTC already has full jurisdiction over derivatives transactions, including cryptocurrencies, it would be more efficient for him to add authority to the CFTC when it comes to spot transactions as well.
Finally, the cryptocurrency industry has rapidly evolved since the publication of the Satoshi Nakamoto White Paper in 2008, in which the author explained the concept of Bitcoin. There is little doubt that this will continue to change rapidly as new use cases for blockchain technology are developed. As a principles-based regulator, the CFTC is in the best position to respond most quickly to changes in technology and practices and ensure maximum customer protection.
Both the CFTC and SEC are strict regulators. However, given the CFTC's history, it would be desirable for any new proposed legislation to give the CFTC additional authority over spot crypto activity.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Write to us: Author Guidelines
Author information
Gary de Waal ISpecial Advisor to Katten Muchin Rosenman.
