Witnesses in an April 27 Congressional hearing on April 27 on “The Future of Digital Assets: Identifying the Regulatory Gaps in Spot Market Regulation," suggested giving the Commodity Futures Trading Commission (CFTC) or a self-regulatory organization oversight authority.
“We have seen catastrophic failures in this space, including the collapse of FTX and dramatic shifts in market capitalization, over relatively short periods of time,” Rep. Yadira Caraveo (D-Colo.), the ranking member of the House Agriculture Subcommittee on Commodity Markets, Digital Assets, and Rural Development, said during the hearing.
“If a digital asset activity occurs on the spot market, it’s not a security," Daniel Davis, partner and co-chair at Katten Muchin Rosenman LLP, said. "It’s not a leveraged retail commodity product and there is no CFTC or SEC regulatory authority over that product.”
Purvi Maniar, deputy general counsel for FalconX Holdings Ltd., said her company believes most digital assets are used and traded like commodities. Falcon X pursues CFTC registration as the best-suited available regulatory framework for digital assets in which it trades.
Nilmini Rubin, head of Global Policy for Hedera, said Congress should provide a delineation between digital commodity and digital security. It should empower the CFTC to regulate certain digital-commodity activities.
Congress should pass a law mandating that any trading or lending platform that trades Bitcoin or Aetherium must comply with a core set of principles unless it has registered with the SEC or the CFTC, Timothy Massad, a former CFTC chairman who is currently a research fellow at Harvard's Kennedy School of Government, said at the hearing.
“As I’ve set forth in my written statement," Massad said, "Congress would direct the SEC and the CFTC to develop joint rules implementing these principles or create a self-regulatory organization, SRO, to do so."
U.S. Bankruptcy Judge Michael Wiles wrote in a March 11 opinion that the absence of clear regulatory guidelines for digital-asset issuers in the U.S. has created a “highly uncertain” environment, with many operating for years without clear and well-defined regulatory requirements.
He stated in his opinion that regulators cannot seem to agree if cryptocurrencies are commodities subject to regulation by the CFTC, securities that are subject to securities laws, or neither. The SEC’s actions might foreshadow “a wider regulatory assault,” Wiles wrote, while also stating that the SEC and the CFTC have sometimes acted in contradictory ways when it comes to the crypto industry.
A survey conducted by the Harris Poll Oct. 6 through Oct. 11 for Grayscale Investments found that 53% of Americans believe “cryptocurrencies are the future of finance,” GlobeNewswire reported. Eighty-one percent of respondents said the U.S. needs clearer regulatory guidelines for crypto companies, the report states.
SEC Commissioner Hester Peirce criticized the SEC’s approach to crypto in a statement expressing her dissent from proposed rule amendments that would redefine “exchange.”
Peirce said the proposed amendments “embrace stagnation, force centralization, urge expatriation, and welcome extinction of new technology.”
She said the SEC’s approach “aggressively expands its regulatory reach to solve problems that do not exist.”
She emphasized that the SEC will urge entrepreneurs to register, but when those companies try to do so but cannot, "the Commission dismisses the possibility of making practical adjustments to our registration framework to help entrepreneurs register, and instead rewards their good faith with an enforcement action."
