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Crypto hearing focuses on need for US regulatory certainty, CFTC expertise

Senate Ag hearing testimony generally supportive of expanded CFTC oversight in digital assets

9 February 2022

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The US Senate Agriculture Committee held a hearing titled "Examining Digital Assets: Risks, Regulation, and Innovation" on 9 February, where discussion centered in large part on the best way to provide regulatory certainty for emerging digital asset markets. For the most part, Senators and witnesses from the private sector and academia expressed support for an expanded role of the US Commodity Futures Trading Commission to offer greater certainty in these markets.

In prepared remarks for the hearing, CFTC Chairman Rostin Behnam said the digital asset industry in the US does not fall under a single comprehensive regulatory regime. Rather, he noted, the CFTC and other federal agencies and state regulators have had to coordinate in establishing the existing regulatory framework. That means there are important principles missing from this framework that are seen in other federally regulated markets, he said, particularly ones that primarily cater to retail investors. 

Although the CFTC does not have direct statutory authority to regulate cash markets for cryptocurrencies, Behnam noted it does have fraud and manipulation enforcement authority. He went on to say the CFTC is well situated to play an increasingly central role in overseeing the cash digital asset commodity market.  

Additionally, Behnam used the occasion to respond formally to a January joint letter from members of both the Senate and House Agriculture Committees which sought to understand the scope and size of digital asset markets, the benefits and risks presented by these emerging technologies, and the role of the US Commodity Futures Trading Commission with respect to these markets.

While discussions touched on tangential areas like cybersecurity risks, the climate impact of cryptocurrency mining operations and American competitiveness, there was broad support for the general notion of the CFTC taking on greater regulatory authority in spot markets for certain digital assets. Other areas of discussion included:

Pros and cons of intermediation

In a response to questioning, Behnam noted potential shifts in digital asset market structure might disintermediate guardrails that have been built over decades to protect customers. On the other side, Sam Bankman-Fried, founder and CEO of digital asset exchange FTX, offered testimony where he stressed his exchange's mission of "democratizing" financial markets by the removal of traditional intermediaries that can create friction in some markets.

Limited CFTC resources

Most Senators and witnesses were broadly supportive of a potentially expanded role for the CFTC as a key digital asset regulator. However, discussions touched on the amount of resources currently available at the agency to deal with this dynamic asset class even as the agency continues to focus on its core mission in US derivatives markets. Behnam noted that the CFTC lacks the financial resources to take on additional regulatory authority of the emerging digital asset markets. Separately, FTX CEO Bankman-Fried noted that while there are a number of options for Congress to consider, such as through appropriations, he also volunteered that FTX would be "happy to play a part" in resourcing under a reasonable structure and suggested that other active firms in the digital asset space could also help provide additional funding for the agency to support an expanded mission.

Limits to potential cash market oversight

Committee Ranking Member Sen. John Boozman (R-Ark.) was among those who expressed concern about granting additional spot market regulatory authority to the CFTC that might allow regulatory creep into other commodity markets. Behnam responded by suggesting there is a way to "surgically limit" the legislative expansion of authority of the CFTC to digital commodity assets, and no other commodities. It was also suggested that regulatory certainty that defines which digital assets are classified as commodities and which are classified as securities could help provide clarity to the limits of any expanded CFTC authority.

Official statements and documents

Archived video of the Senate Agriculture Committee hearing

Testimony of CFTC Chairman Rostin Behnam

Statement of Committee Chairwoman Stabenow

Statement of Committee Ranking Member John Boozman

Testimony of Sandra Ro,CEO of Global Blockchain Business Council

Testimony of Samuel Bankman-Fried, Founder and Chief Executive Officer, FTX

Testimony of Perianne Boring, Founder and CEO, Chamber of Digital Commerce

Testimony of Kevin Werbach, Professor, The Wharton School, University of Pennsylvania

 

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