CFTC Chairman Asks Congress For Authorization To Regulate Some Cryptocurrencies

CFTC Chairman Asks Congress For Authorization To Regulate Some Cryptocurrencies

WASHINGTON — The head of the Commodity Futures Trading Commission on Wednesday called on lawmakers to grant his agency authority to regulate cryptocurrencies such as bitcoin, saying “speculative fervor” around such assets has left investors in the dark. need protection.

“My responsibility is to assume that it will continue to take root and that this technology will continue to emerge and integrate into mainstream finance,” Behnam said in response to a senator’s question on the matter. whether cryptocurrency is likely to expand its role in the financial system. “If we don’t approach technology that way, we run the risk of stability and security issues and robustness issues.”

Mr. Behnam has suggested that Congress pass legislation that would allow the CFTC to regulate spot markets for certain types of cryptocurrencies – currently the agency is limited to regulating derivatives – and provide it with funding for additional monitoring. Such legislation would seek to fill a regulatory gap, as certain types of cryptocurrency claim to fall outside the jurisdiction of the federal government’s other market regulator, the Securities and Exchange Commission.

The hearing comes a day after the Justice Department said it seized more than $3.6 billion in stolen digital currency in a cryptocurrency exchange hack, its biggest financial seizure ever. never done. Two suspects have been arrested for allegedly attempting to launder the product.

Biden administration regulators have compared the roughly $2 trillion cryptocurrency market to the Wild West and said it lacks the safeguards that protect investors in stocks, bonds or commodities. But they have struggled to apply the decades-old laws that govern these markets to the cryptocurrency industry, which is furiously lobbying Washington to avoid being regulated by the SEC.

Although the SEC has not announced any major actions against major crypto exchanges, the commission has threatened to sue companies offering crypto loans. The WSJ’s Dion Rabouin explains why this part of the crypto market has received such a strong reaction. Photo: Mark Lennihan/Associated Press

Both the CFTC and the SEC have cracked down on cryptocurrency projects and trading platforms that they consider to be breaking the law or defrauding investors. But neither agency has achieved unchallenged oversight of the two biggest cryptocurrencies: bitcoin and ether, which together account for around 60% of the entire market.

It’s because of two things. First, many lawyers believe that bitcoin and ether are, for legal purposes, products beyond the jurisdiction of the SEC. Second, the CFTC only has the power to regulate derivatives, such as futures and swaps, as opposed to spot or spot markets where the underlying assets are bought and sold.

“There is not a single regulator, whether state or federal, with sufficient visibility into the digital asset commodity trading activity to fully control conflicts of interest and deceptive business practices affecting retail customers,” Mr. Behnam said in his prepared testimony.

The Senate Agriculture Committee, which along with its House counterpart oversees the CFTC, has begun to consider the possibility of granting the agency that power through legislation. Top-ranking Republicans and Democrats on the House and Senate panels sent Behnam a letter last month asking if he saw any shortcomings in the CFTC’s ability to police cryptocurrencies.

“Congress must work with regulators and the Biden administration to craft a framework that protects consumers and our environment and keeps our markets fair, transparent, and competitive,” Sen. Debbie Stabenow (D., Michigan) said at the head of the committee. Wednesday.

Behnam said the cryptocurrency spot market would benefit from CFTC oversight. Spot markets for other commodities, such as corn and oil, are dominated by companies. In contrast, the cryptocurrency market is full of individual investors. These investors often take high leverage to trade. They also entrust their crypto tokens to trading platforms that have often lost funds due to hacks and poor cybersecurity.

“The CFTC is well positioned to play an increasingly central role in the oversight of the cash-based digital asset commodity market,” he said.

After years of opposing meaningful federal oversight, cryptocurrency lobbyists have recently focused on convincing lawmakers and regulators that the CFTC should have primary jurisdiction over their industry. They say SEC rules for traditional securities like stocks and bonds would be impossible to meet for most cryptocurrencies and trading platforms because they impose significant disclosure requirements and liability on issuers.

“I think the CFTC is in a very good position to do that,” Sam Bankman-Fried, the billionaire founder of cryptocurrency trading platform FTX, said during Wednesday’s hearing. “I would like to see this jurisdiction expanded to be able to provide federal oversight of cash markets similar to the way they do derivatives markets today, both to provide consumer protection, to protect against systemic risks and provide a clear and consistent framework for the industry.”

Write to Paul Kiernan at [email protected]

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