The latest U.S. legislative effort to steer most crypto oversight to the Commodity Futures Trading Commission (CFTC) has bipartisan support but does little to answer the crypto industry's top question: What makes a token a security or a commodity?
The legislation from the leaders of the Senate’s Agriculture Committee would require crypto firms involved in the trading of digital commodities – including bitcoin (BTC) and ether (ETH) – to register with the CFTC as their primary regulator, something industry leaders such as FTX co-founder and CEO Sam Bankman-Fried are cheering from the sidelines.
But while the bill would grant expanded authority to the CFTC to oversee crypto spot markets, it relies on the courts and the Securities and Exchange Commission (SEC) to set the boundaries for which tokens may be considered a commodity.
“Right now, there's really a patchwork of state regulations and no federal agency to conduct oversight over the cryptocurrencies, and we know that needs to change,” said Sen. Debbie Stabenow (D-Mich.), the committee’s chairwoman, who unveiled the bill Wednesday with the panel’s ranking Republican, Sen. John Boozman (R-Ark.). “The money of American consumers is at risk.”
Their committee has jurisdiction over commodities, so its oversight authority extends only to the CFTC. That’s as far as the lawmakers wanted to stretch their effort, unlike more sweeping bills such as the crypto push from Sen. Cynthia Lummis (R-Wyo.) and Sen. Kirsten Gillibrand (D-N.Y.)
“We're staying in our lane, but it's a really important lane for consumers,” Stabenow told reporters during a web call Wednesday. She explained the decision not to define crypto as securities was about staying inside the Senate panel’s jurisdiction. As for crypto commodities, the legislation defines them as a digital form of property that can be directly transferred between people without any institution acting as middleman.
The bill doesn’t go into great detail on that definition, however, apart from giving the examples of bitcoin (BTC) and ether (ETH), which the SEC previously defined as commodities. Apart from that, the legislation says the CFTC can affix its commodities stamp on whatever crypto assets aren't considered by the SEC to be securities.
However, CFTC Chair Rostin Behnman has also been vying for new authority to regulate digital commodity spot markets, where the assets directly change hands. The new bill would grant that authority. The CFTC would be given “exclusive jurisdiction over any account, agreement, contract or transaction involving a digital commodity trade,” according to the text of the bill.
Behnam commended the lawmakers for their “targeted” effort. He didn’t directly address the significant new CFTC role over cash markets, which would represent an unprecedented reach for the agency into a specific sector.
“We are at a critical inflection point where new legislative authority is needed to clarify ambiguities and provide a regulatory framework,” Behnam said in a statement.
The two senators, backed by colleagues Cory Booker (D-N.J.) and John Thune (R-S.D.), say they may pursue a September markup, which is an open session inviting debate over the details of the legislation.
They insisted this bill isn't just meant to start a discussion. While the Lummis-Gillibrand bill is meant to frame a debate that’s largely expected to take place next year, Stabenow and Boozman said they intend to get their bipartisan legislation passed this year.
Stabenow said it’s “very realistic” they could reach a committee markup in September, and she noted that only needing to get the bill through a single committee streamlines the process.
A similar bill has been previously introduced in the House of Representatives, but it hasn’t yet reached a committee vote.
If the bills become law, the CFTC would oversee the vast majority of the crypto market by value, because bitcoin and ether are the biggest tokens by far. Dealers, brokers, custodians and trading facilities would each have new registration requirements with the agency, and fees on those businesses would fund the staff growth the agency would need.
Boozman said the legislation assumes the commodities and securities agencies will work closely with each other, though he said “the CFTC is the place” where authority over the crypto industry belongs.
“We are going to need cooperation between the SEC and the CFTC as we move forward to really hash this out,” he said.
Denelle Dixon, Stellar Development Foundation’s CEO, had met last week with the senators to push for more regulatory clarity. She tweeted that this bill marks “a big step in that direction.”
Bankman-Fried took to Twitter on Wednesday to praise the legislation, saying it would “provide clear federal oversight to digital asset commodity markets” and that his firm would be happy to register under this proposed regime.
The most recent bills are part of a trend in Congress. There are bipartisan proposals for regulating U.S.-pegged stablecoins and legislation that would address some of the crypto industry’s chief tax worries. However, all face delays due to the coming congressional summer recess and the approaching midterm elections.
Lawmakers who once dismissed crypto as a momentary financial trend have changed their minds.
"Everyone thought this was going to go away, that it was nothing,” Stabenow acknowledged. “Well, it's not nothing. We need to treat this seriously and take our responsibilities seriously."
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