One of the founding principles of cryptocurrency is that it’s decentralized and
unregulated. But the U.S. government isn’t too worried about crypto’s founding
principles.
SEC chair Gary Gensler spoke at the Aspen
Security Forum Tuesday, highlighting his view of the SEC’s role in cryptocurrency
regulation. Gensler called the current crypto landscape the ‘Wild West’.
In fact, cryptocurrency regulation has been a frequent point of interest lately for U.S.
lawmakers and government agencies. Just this week, the $1 trillion infrastructure
bill which includes provisions for crypto regulation passed the Senate, and Security and
Exchange Commission Chair Gary Gensler talked about the SEC’s role in regulating
digital assets.
A few key themes have emerged on the subject of new U.S. cryptocurrency regulation:
stopping cryptocurrency crime and tax evasion, stablecoin regulation, and the potential
for investment vehicles like crypto ETFs and other funds.
For many crypto enthusiasts, the decentralized nature of digital currencies — which,
unlike traditional currencies, aren’t backed by any institution or government authority
— is a big draw. But regulatory guidance can help protect investors. “As much as I like
the decentralization and the lack of government [involvement], I am glad that they are
paying attention because unfortunately with cryptocurrency, there are a lot of scams,”
says Kiana Danial, author of “Cryptocurrency Investing for Dummies.”
A commissioner with the U.S. Commodity Futures Trading Commission
(CFTC) has detailed how crypto assets are regulated in the U.S. and
whether they fall under the jurisdiction of the CFTC or the Securities and
Exchange Commission (SEC). “There has often been a grossly inaccurate
oversimplification” of how crypto assets are regulated in the United
States, said the commissioner.
How Crypto Assets Are Regulated in the US
CFTC Commissioner Dawn D. Stump clarified last week how crypto assets are
regulated in the U.S. by the CFTC or the SEC.
“The recent growth in popularity of crypto products and other digital assets
has drawn much attention to the question of how this new financial asset class
is regulated in the United States,” she began, adding:
There has often been a grossly inaccurate oversimplification offered which suggests
these are either securities regulated by the Securities and Exchange Commission, or
commodities regulated by the Commodity Futures Trading Commission.
“The CFTC does not regulate commodities (regardless of whether or not they
are securities); rather, it regulates derivatives — and this is true for digital
assets just as for any other asset class,” Commissioner Stump emphasized.
“The CFTC does not have regulatory authority over cash commodities,” she
explained, clarifying the derivatives watchdog “regulates futures contracts on
commodities, and other derivatives products such as swaps.” This includes
“futures contracts on bitcoin and ether listed for trading on various CFTCregulated exchanges.”
The commissioner noted that digital assets that are securities fall under the
jurisdiction of the SEC, but “futures contracts and other derivatives on
securities may be regulated by the CFTC or the SEC, or jointly by both.”
To determine who has the jurisdiction in a specific case, Commissioner Stump
said that “An analysis of Congress’ statutory framework,” the CFTC rules, the
SEC rules, and “the specific characteristics of the product” is required,
elaborating:
Therefore, if a digital asset is a security, further analysis is required to determine
where regulatory authority lies for a derivatives product on that digital asset.
As for whether a particular crypto asset is a security, SEC Chairman Gary
Gensler said that the rules are clear. “Certain rules related to crypto assets are
well-settled. The test to determine whether a crypto asset is a security is clear,”
he said early this month.
However, some people, such as Ripple CEO Brad Garlinghouse, disagree. He is
being sued by the SEC over the sale of XRP.
Commissioner Stump further noted that the CFTC has “enforcement authority”
that “includes a broader application for anti-manipulation and anti-fraud
authority.” This authority extends to even cash commodities which the CFTC
does not regulate in order “to protect the integrity of the derivatives markets”
overall. An example of this enforcement authority is the action the CFTC
took against Bitmex.
The commissioner concluded:
For a number of years, the CFTC has aggressively used its broader enforcement
authority to deter manipulation and fraud involving cash digital assets, even though
the CFTC does not regulate them.