The ‘Good Cop and Bad Cop’ of US Crypto Regulations

If U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler is often perceived as the “bad cop” of the crypto industry, Rostin Behnam – chairman of sister regulatory agency the Commodity Futures Trading Commission (CFTC) – has long been seen as the “good cop.”

Since his appointment as chair of the SEC in 2021, Gensler has taken a tough stance on regulating the crypto industry, seemingly preferring to regulate via enforcement actions and keeping mum about things – including which cryptocurrencies are considered to be securities by his agency – that could help industry players comply with regulations.

While Gensler’s stance as a regulator has drawn the ire of many industry executives, Behnam has often been held up as his foil. Unlike Gensler, Behnam frequently speaks at crypto conferences, talks openly about his interest in blockchain technology and financial innovation, and has appeared to be interested in an open dialogue with industry leaders to develop regulatory guardrails for crypto.

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Gensler and Behnam’s different approaches to regulation has resulted in a tug-of-war between the two agencies over which one will ultimately be responsible for regulating the industry. The CFTC currently appears to be winning that war: Both of the major crypto bills introduced this year expand the CFTC’s powers to regulate the crypto spot market.

Gensler, for his part, has held that the vast majority of cryptocurrencies are securities and that existing securities laws offer enough clarity to regulate crypto – no new laws are needed.

While many in the industry have cheered on the CFTC in its turf battle with the SEC, the CFTC’s recent spate of enforcement actions have led some to question whether Behnam is really the regulatory savior they were hoping for.

Behnam has made it clear that he never wanted to be crypto’s savior. Speaking at a panel in New York in October, Behnam said that he gets “very irritated when folks start to talk about the CFTC as a more favorable regulator,” adding that his agency’s “greatest accomplishment” was its track record of crypto-related enforcement actions.

While most of the CFTC’s 82 crypto-related enforcement actions in 2022 have been against outright scams and Ponzi schemes, some – including its recent charges against the pseudonymous members of Ooki DAO – have resulted in criticism (including from a sitting CFTC commissioner) that the CFTC, like the SEC, is attempting to regulate via enforcement.

Behnam has pushed for his agency to get expanded authority as well as a budget boost to allow the CFTC to bring more cases and do more investigative work, rather than rely on tips and whistleblowers to root out fraud.

The CFTC’s expanded authority, if granted, doesn’t mean the SEC is going anywhere when it comes to regulating crypto. Both Gensler and Behnam have been vocal about the need for both agencies to work together to oversee the industry.

“I have no doubt that the vast majority of the tokens that exist in the digital asset ecosystem are security tokens,” Behnam said at a New York University Law School event earlier this year.

However, as the CFTC continues to crack down on crypto, Behnam and Gensler’s “good cop, bad cop” routine might become outdated in 2023 – for many in the industry, it might feel more like “bad cop, worse cop.”