When Senators Cynthia Lummis (R-Wyo.) And Kirsten Gillibrand (DN.Y.) revealed that their bipartisan bill that creates a regulatory framework for cryptocurrencies would define most digital assets as commodities rather than securities, the response was predictable.
The Commodity Futures Trading Commission (CFTC) was ecstatic and the Securities and Exchange Commission (SEC) was horrified.
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They both shook hands when the political debate over who should regulate the crypto industry came to a boil over the past year.
SEC President Gary Gensler, an even more aggressive regulator than predecessor Jay Clayton, has called the crypto industry the “wild west of finance” and believes almost all chips are securities. Among other things it was after it had been exchanges of cryptocurrencies and loan platforms, demanding that they register as brokers and comply with the agency’s regulations.
CFTC President Rostin Behnam was all smiles, telling reporters that Lummis and Gillibrand did a “very good job” in drafting the Responsible Financial Innovation Act, adding “one of the trickiest things we’ll have to do, and I think they approach this very well, it is deciphering between a commodity and a security.
On the other hand, Gensler was politically correct and told a hearing at the Wall Street Journal’s CFO Network Summit on June 14 that he wanted to talk to senators before commenting publicly, CoinDesk reported.
Read more: The SEC president intensifies the cryptographic crusade and sends message to CFTC
He then said he wanted to “continue to protect” the SEC’s role in overseeing the public’s fundraising, that is, to continue to do what it has been doing, before essentially warning that Lummis Gillibrand’s bill would encourage scholarships. securities, money market funds and other audiences. companies to seek political support to move “out of the regime” of the SEC regulatory authority.
His comments were more or less a warning of a complete regulatory collapse of the financial markets.
Under a CFTC scheme
This raises another question: what would the new regime look like if the CFTC – the thriving cryptocurrency industry, which wants to get under the SEC’s thumb – left?
Both agencies would still have a hand, but the CFTC would have “clear authority over the applicable digital asset spot markets, which aligns well with its current scope over other commodity markets,” the senators said.
Read more: SEC, CFTC coordination may be the way forward for cryptographic regulation
This means that instead of just bitcoins and ether – which both agencies have already agreed are commodities – the CFTC would have control over most digital assets, with the SEC relegated to cryptocurrencies that provide its holder with certain privileges shared by corporate securities. such as dividends and settlement rights. .
Although the new bill would give the CFTC oversight of cryptocurrencies, it would not necessarily give it regulatory control of the spot crypto market, that is, an exchange in which anyone, from a small retail buyer to an institutional investor, buys tokens. for immediate delivery, but rather. futures and derivatives contracts. Therefore, Main Street investors would not see their purchases controlled by the CFTC, but the agency would have the authority to control fraud and market manipulation.
See also: Gensler says SEC plans to regulate cryptographic exchanges, sharing power with CFTC
That would differ from an SEC-controlled cryptocurrency market, which is more or less what it is now, as seen in Coinbase’s recent spot exchange decision to register as a broker. While the agency is encouraging others to follow suit and is not too subtly threatening to start suing those who do not, its authority is unclear.
However, the agency would still have control over initial coin offerings (ICOs), which it claimed and enforced as early as 2017, so they are very rare now, and over much of decentralized finance or DeFi.
So with the CFTC, there would be a lighter hand on the regulatory accelerator, so the crypto industry is delighted.
If the Gensler agency ends up getting what it wants, on the other hand, expect a much more aggressive application.
What is less clear is how all this will unfold after the various federal agencies develop the proposed regulatory framework ordered by President Joe Biden in a March executive order. That will be due in September. Either way, he expects the recent but influential lobbying efforts of the crypto industry to increase as September approaches and redoubles after that.
See more: Crypto Industry Lobby Punching Above your weight class
One thing that will provide that process is a route for people to express their views on the various options, as agencies are likely to bring together public opinion: a Commerce Department agency already has one in place.
Public opinion will play a role in the outcome. And if markets are cratering like this year and especially this month, the SEC will have more support on its side.