The crypto industry in the US took a step closer to going mainstream as two bills progressed through Congress the week of 14 July, offering a potential pathway for further integrating digital assets into traditional finance.
During what the Republican Party dubbed "Crypto Week", the US House of Representatives passed the bipartisan Guiding and Establishing National Innovation for U.S. Stablecoins Act (Genius Act) on 17 July to create a regulatory framework for US dollar-pegged cryptocurrency tokens, known as stablecoins. President Donald Trump signed it into law the following day.
Notably for the futures industry, the House also voted to pass a second, much broader crypto market structure bill that will now go to the Senate. The Digital Asset Market Clarity Act (Clarity Act) aims to develop a regulatory regime for cryptocurrencies that would expand the Commodity Futures Trading Commission's oversight of the digital asset industry. Both Republicans and Democrats support this legislation, as does the industry and FIA, which has been vocal on the subject.
The crypto industry has long sought legislation to help delineate when digital assets are considered securities or commodities. The distinction will help determine which financial regulator has oversight – the CFTC or the US Securities and Exchange Commission, which had previously brought numerous enforcement actions against crypto firms for securities law violations.
Testifying before a US Senate Agriculture Committee hearing on federal oversight of digital commodities on 15 July – two days before the House vote – FIA President and CEO Walt Lukken shared why the CFTC is uniquely qualified to oversee digital commodities.
“The CFTC’s regulatory framework has several strengths I would like to highlight. These include principles-based regulations, an innovation-forward mission, robust customer protections, strong enforcement and an effective cross-border framework,” said Lukken.
“The listing of futures on digital commodities has already provided the CFTC with significant experience regulating the cryptocurrency markets. This experience, along with the CFTC’s regulatory approach, positions the agency well for assuming more responsibility in the regulation of cash digital commodities,” he added.
Crypto companies have argued that most crypto tokens should be classified as commodities, rather than securities, which would enable platforms to more easily offer those tokens to their customers.
The House’s Clarity Act defines a structure for the regulation of digital assets, distinguishing between those subject to the jurisdiction of the SEC and “digital commodities,” over which the CFTC would have exclusive jurisdiction. The CFTC’s jurisdiction would encompass digital commodity exchanges, brokers and dealers, except when digital commodities are transacted by SEC-registered exchanges, brokers and dealers. In these limited circumstances, the SEC would retain anti-fraud and market-manipulation authority.
Watershed moment
With the pro-crypto environment and the prospect of legislation passing in the Senate, more firms are setting their sights on expanding in the US to capitalise on what they hope will be growing mainstream interest in the sector.
On the same day Congress passed the bills, digital currency exchange Kraken announced the launch of a regulated crypto futures platform for US clients. Offered through Kraken Derivatives US, the new service will allow US users to trade CME-listed Bitcoin and Ethereum contracts along with spot crypto assets on Kraken Pro.
Speaking on a panel last month at FIA’s International Derivatives Expo, Nilesh Khatwani, global head of institutional sales at Crypto.com, said his company has evolved from having to justify its operations in the US under the SEC, to innovating and launching new products under the new administration.
“The new administration said it wanted the US to become the crypto capital of the world, allowing companies to innovate, to grow and to focus their time and energy into doing that. We had to close our US exchange for a long time. As soon as the new administration came in, we opened that for spot trading, and we saw a lot of other companies move their operations, on the exchange side, from offshore back to the US,” Khatwani said.
Europe uncertainty
While the US has doubled down in supporting the crypto industry, senior executives across the Atlantic have warned that Europe risks losing out if it does not iron out regulatory hurdles and provide certainty to firms wishing to operate there.
Although Europe held the early ground with its comprehensive regulatory framework for crypto – the Markets in Crypto Assets Regulation – in 2023, further progress has stalled, they say.
“Europe stole a march on the US with MiCA, providing a Europe-wide regulation system. Prior to the Trump administration, a lot of the reasons why firms weren't doing well in the US was because of the regulatory uncertainty. MiCA was an effort by Europe to allow that certainty,” David Furlong, the chief executive of the European trading arm of market maker Virtu Financial, said at IDX.
“Unfortunately, there's still a lot of uncertainty around that certainty, and that’s disappointing, especially when you look at the Savings and Investments Union where we should be trying to be leading in Europe, and we're not. We're falling behind,” he said.
“There are questions around capital – how much capital we need to hold for crypto assets. I know under the CRR [Capital Requirements Regulation], a lot of banks are having problems with that. We cannot get the kind of margin we would normally associate with our banks and prime brokers, and that limits the amount we are able to do,” Furlong said.
In addition, registration under MiCA’s crypto asset service provider and virtual asset service provider categories have so far fallen behind expectations. However, Furlong said there is still an opportunity to expand the market, pointing to the growth in exchange-traded fund listings in the region.
“While I have concerns about MiCA implementation, especially differing implementation in different jurisdictions, regulatory certainty will give us an opportunity,” he said.
Crypto has often been synonymous with a lack of regulation. However, with governments around the world working on rules and regulatory frameworks for digital assets, this is rapidly changing.
