New crypto oversight legislation arrives as industry shakes

The Commodity and Futures Trading Commission (CFTC) would be given oversight of digital commodities if U.S. legislation proposed Wednesday is passed into law.

A bipartisan group of senators introduced legislation that would give the CFTC – the derivatives regulator – the authority to regulate trading of digital commodities, requiring trading platforms to register with the CFTC.

The bill is supported by Democratic senator Debbie Stabenow and Republican John Boozman, the heads of the Senate Committee on Agriculture, Nutrition and Forestry.

Among other things, the bill would set standards for digital trading platforms that would align with the requirements for traditional financial institutions.

For instance, the bill aims to require that platforms prohibit abusive trading practices, eliminate or disclose conflicts of interest, protect client assets, report suspicious transactions and maintain adequate cybersecurity. It would also set advertising standards for trading platforms and impose disclosure requirements on them.

The bill would also enable the CFTC to impose user fees on trading platforms to fund its oversight of the market.

“Our bill will empower the CFTC with exclusive jurisdiction over the digital commodities spot market, which will lead to more safeguards for consumers, market integrity and innovation in the digital commodities space,” Boozman said in a release.

“We are at a critical inflection point where new legislative authority is needed to clarify ambiguities and provide a regulatory framework to the digital commodity market that protects customers, provides market integrity and certainty, and ensures financial stability,” CFTC chairman Rostin Behnam said.

While the bill would expand the CFTC’s authority in the crypto space, it doesn’t grant the regulator exclusive jurisdiction over this evolving area — it also acknowledges that other agencies have a role in regulating digital assets that function more like securities or forms of payment, rather than commodities.

Senators Cory Booker and John Thune are co-sponsors of the bill.

The proposal to make CFTC the default regulator for cryptocurrencies would be in contrast with bills proposed by other members of Congress and consumer advocates, who have suggested giving the authority to the Securities and Exchange Commission.

This year, crypto investors have seen prices plunge and companies crater with fortunes and jobs disappearing overnight, and some firms have been accused by federal regulators of running an illegal securities exchange. Bitcoin, the largest digital asset, trades at a fraction of its all-time high, down from more than $68,000 in November 2021 to about $23,000 on Wednesday. Industry leaders have referred to this period as a “crypto winter” and lawmakers have been desperate to implement stringent oversight.

The CFTC is historically an underfunded and much smaller regulator than the SEC, which has armies of investigators to look at potential wrongdoing. The bill attempts to alleviate these issues by imposing on the crypto industry user fees, which in turn would fund more robust supervision of the industry by the CFTC.

“(The cryptocurrency industry is) trying to get anyone other than the SEC to regulate them,” said Cory Klippsten, CEO of Swan Bitcoin. While an advocate for Bitcoin, Klippsten is deeply skeptical of much of broader crypto industry, which has produced a myriad of tokens and other coins that he considers to be nothing more than scams.

Cryptocurrency billionaire Sam Bankman-Fried, who has donated millions of dollars to mostly Democratic-leaning candidates and super PACs, tweeted his support for the Stabenow-Boozman bill.

Boozman, in a call with reporters, said the industry’s preferred choice to regulate crypto is the CFTC.

“They are fairly united on this,” he said.

In a press conference, Stabenow and Boozman both acknowledged that while they have faith that the CFTC is up to the task of regulating cryptocurrencies, the agency would need support. The CFTC already oversees futures contracts for Bitcoin and Etherium, and the bill attempts to alleviate issues about staffing by imposing user fees on the crypto industry. Those funds in turn would fund more robust supervision of the industry by the CFTC. The bill would leave crypto-like products, like tokens or non-fungible tokens (NFTs), for the SEC to potentially assert its regulative authority.