Proposed Bill Could Take Away Crypto Regulation Oversight from SEC
A new bill that will grant the Commodity Futures Trading Commission (CFTC) sweeping authority to regulate top cryptocurrencies has been introduced in the US Senate. The Bipartisan bill was introduced by Democrat Debbie Stabenow and Republican John Boozman, two leading members of the Senate Agriculture Committee.
The clamor for clear-cut regulations for digital assets has been on for a while, with several proposals already tabled. However, the new bill will clearly define a digital commodity to include Bitcoin, Ether, and other cryptocurrencies that are not securities. This could help remove the ambiguity that has caused the likes of Coinbase to come under scrutiny from the Securities and Exchange Commission (SEC).
Bitcoin and Ether Regarded as Commodities
The bill titled Digital Commodities Consumer Protection Act of 2022 summarily grants the derivatives regulator direct control over tokens that qualify as digital commodities. These include Bitcoin and Ether, two of the biggest digital assets.
Furthermore, brokers, custodians, and exchanges must register with the CFTC to provide cryptocurrency platforms. Accordingly, this registration would be subject to rules that guarantee fair pricing, prevent market manipulation, avoid conflicts of interest, and maintain “sufficient financial resources.”
Currently, most cryptocurrency exchanges are governed by state laws because there are no explicit federal regulations or monitoring requirements. However, the SEC indicates that cryptocurrency exchanges that list digital assets should be recognized as national securities exchanges. Nonetheless, the new bill dictates that these platforms be treated like their traditional finance counterparts.
US lawmakers have continued working on measures to safeguard the crypto industry, which has recently witnessed substantial instability and high-profile failures. Earlier in the year, the Senate Agriculture Committee had called on the CFTC to offer more guidance on digital assets. In February, the committee also had a high-profile hearing with industry experts on the issue.
The new bill joins several other legislations being pushed to clarify the rules around cryptocurrencies. It has also received significant backing from crypto experts who believe the CFTC rather than the SEC should oversee non-security digital assets.
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How the CFTC Differs From the SEC
The CFTC is an independent agency of the US government that oversees the country’s derivatives markets, which include futures, swaps, and specific types of options. It differs significantly from the SEC, which is responsible for securities. Its objectives include fostering competitive and effective markets and safeguarding investors from manipulation, unfair business practices, and fraud.
With the CFTC increasingly receiving calls to proffer oversight functions in the digital asset space, it recently announced a New Tech Innovation Office. The CFTC’s chairman, Rostin Behnam, further revealed that his organization was in an excellent position to play a more prominent role. However, the new bill’s definition of Bitcoin and Ether as commodities ensures that the derivatives regulator takes on more responsibility within the digital assets space.
The advent of cryptocurrency has brought the controversy of whether they are commodities or securities. By definition, a commodity is an economic good with complete or significant fungibility. This means that the market treats instances of the good as similar or nearly equivalent without regard to who produced them. However, securities are fungible financial instruments that indicate ownership positions used to raise capital in the form of equity (stocks), debt (bonds), or a mix of both.
Going by these definitions, both Bitcoin and Ether can be considered commodities. According to a report, their ability to provide a highly sought-after digital commodity in blockspace makes them fit the bill. Also, their decentralized nature ensures they are not securities, as no particular entity controls them. However, all other digital assets may not fall into the same category.
A mooted impact of the new bill by its sponsors is that it provides much-needed regulatory clarity to the crypto market. Speaking on the new legislation, Senator Stabenow reiterated the importance of closing regulatory gaps while enacting rules to protect consumers and the financial system. She said,
“One in five Americans have used or traded digital assets — but these markets lack the transparency and accountability that they expect from our financial system. Too often, this puts Americans’ hard-earned money at risk. That’s why we are closing regulatory gaps and requiring that these markets operate under straightforward rules that protect customers and keep our financial system safe.”
However, Stabenow said the bill did not cover the entire crypto industry. Hence the powers of the SEC are not undermined. Therefore, she expects the securities regulator to continue to police crypto products that fall under their purview.
While the new bill has gained support from the crypto community, it is still a long way from being passed into law. Nonetheless, its sponsors say they want to act quickly on the legislation. However, no definitive timeline was given.
Do you think Bitcoin and Ether being categorized as commodities and being brought under the CFTC would increase their appeal? Let us know your thoughts in the comments below