The U.S. House of Representatives and Senate Agriculture Committees requested information from the Chair of the Commodities Futures Trading Commission about crypto and the role they play in its monitoring and enforcement.
The CFTC chair Rostin Behnam intends to expand the regulator’s authority over the crypto market. Democrats and Republicans from the Senate and House Agriculture Committees agreed that the agency plays a “critical role“.
In a letter that Bloomberg described as “a rare show of bipartisanship in a divided Congress”, the lawmakers asked chair Benham to answer several questions in order “To understand the scope and size of digital asset markets, the benefits and risks presented by these emerging technologies” and “the role of the Commission with respect to these markets”.
“The CFTC has a critical role to play to ensure the integrity of digital asset markets. While some of these technologies have the potential to modernize the financial system, it is imperative that customers are protected from fraud and abuse and that these markets are fair and transparent.”
They discussed the potential risks associated with the cryptocurrency industry and asked for the CFTC’s expansion of their involvement to safeguard consumers against losses and fraud.
It outlines the possible risks in the sector and reiterates the fact that the Commodity Exchange Act empowers the CFTC for enforcement actions against violations arising out of digital asset marketplaces.
“Despite the CFTC’s responsible engagement, this industry is still subject to risks of abuse, including consumer fraud and cybercrime. Consumers reported losing nearly $82 million to 2 cryptocurrency scams between the fourth quarter of 2020 and first quarter of 2021, more than 10 times the amount from the same six-month period a year earlier.”
The lawmakers are also concerned about risks in the DeFi space and “any DeFi protocols offering derivatives contracts on unregistered exchanges”. However, they noted that “there are still questions about who is responsible for monitoring DeFi markets for fraud and manipulation, safeguarding customer
funds, and ensuring parties meet their obligations to one another.”
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Authority Of The CFTC
In October 2021, during chair Rostin Behnam’s confirmation hearing, he appealed to Congress looking to expand the CFTC’s regulatory authority and stated that the entity is ready to be the “primary cop on the beat”
“the total size of the digital asset market was US$2.7 trillion and among that $2.7 trillion, nearly 60% were commodities. So with that in mind, I think it’s important for this committee to reconsider and consider expanding authority for the CFTC,”
Behnam’s statement seemed to contradict Gary Gensler’s, chair of the Securities and Exchange Commission (SEC), who sees most cryptocurrencies as equity. The race to be more authoritative has turned this into an arms race among regulators.
The SEC’s view on how to define Ether has become unclear. If the top two most popular cryptocurrencies in market capital (BTC and ETH), aren’t securities, the SEC is able to regulate a significant portion of this market.
However, the lawmaker’s letter defined both Bitcoin and Ether as commodities, which would mean that both of these assets fall under the CFTC’s jurisdiction.
“The CFTC has long considered certain digital assets to be commodities and courts have agreed. Bitcoin and Ether, which are both the most valuable digital assets according to market capitalization, are actually commodities. They account for approximately 60% of $2.7 trillion in the market. Futures contracts on Bitcoin and Ether are currently traded on CFTC-registered derivatives exchanges.”
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