Bitcoin and Ethereum regulation likely to end mostly under CFTC



The Commodities Futures Trading Commission appears to be gaining the upper hand in its turf battle to regulate US cryptocurrency transactions, which could potentially overwhelm the agency’s staff and budget

A bipartisan bill sponsored by Senate Agriculture Committee leaders and introduced in July gives the CFTC the primary role in spot trading of bitcoin and ethereum, which dominate the crypto market by value. The Senate legislation presented earlier also emphasizes the role of the CFTC.

The Securities and Exchange Commission has sought to be heard, at least on smaller coins, many of which are considered securities rather than commodities. This could mean that crypto exchanges are required to register with the SEC as brokers, even though the CFTC bears most of the responsibility.

Coinbase, a major cryptocurrency exchange, told the SEC in July that the agency’s existing registration rules would be onerous for digital assets. In a letter to the commission, he said: “For digital assets that are securities, registration under the current rules is, for many market participants, either impossible or economically viable given the burdens of associated and unnecessary compliance.”

The crypto industry seems to prefer the CFTC, whose oversight of established commodity markets is less concerned with protecting retail investors than SEC regulations for securities like stocks.

Since late last year, CFTC Chairman Rostin Behnman has been fighting for the power to regulate spot markets for digital commodities, where assets change hands directly without an intermediary.

Behnman may be biting off more than he can chew.

“They’re understaffed and would be totally overwhelmed without a substantial allocation of new funds from Congress,” says Carol Van Cleef, who leads the blockchain and crypto practice at the Bradley law firm in Washington.

The CFTC employs about 700 people and has a current budget of about $1.47 billion per year, while the SEC has nearly 5,000 employees and receives funding of $2.65 billion. Yet all current funding for the two agencies is already provided for, so additional funds would need to be found.

“The SEC can be three times larger than the CFTC. But you know, everything they’re doing is already out of budget, they have three times as much work to do,” CFTC Commissioner Chris Giancarlo said.

If Congress grants official authority to the CFTC in a completely separate piece of legislation, it will have to grant it the additional funds. And the same goes for the SEC,” says Giancarlo.

The additional funds, or credits, needed to regulate crypto may not be a simple request from either agency due to the large sums that could be required to regulate the industry.

However, some lawmakers are pushing for regulators to levy fees to regulate cryptocurrency instead of seeking budget appropriations.

The first of two Senate bills, sponsored by Senate Agriculture Committee member Kirsten Gillibrand (D-NY), and Senate Agriculture Committee member Cynthia Lummis (R-WY), “creates opportunities for the industry to file directly with agencies like the CFTC and the SEC, but also allows those agencies to set up their own fee structure in order to accomplish regulation,” says a source familiar with the legislation.

It remains to be seen how market participants would react if they had to pay for their regulation.

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