Original title: Trump admin eyes CFTC to lead digital asset regulation
Original author: Eleanor Terrett, FOX Business
Original source: https://www.foxbusiness.com/markets/trump-admin-eyes-cftc-lead-digital-asset-regulation
Translation by: Tom, Mars Finance
This initiative will be an important step toward providing regulatory clarity for the cryptocurrency industry.
According to FOX Business, the incoming Trump administration aims to expand the powers of the Commodity Futures Trading Commission (CFTC), granting it regulatory authority over a significant portion of the $3 trillion digital asset market.
This plan is part of the broader effort to reduce the Securities and Exchange Commission's (SEC) regulatory power over the digital asset industry under President Biden and his soon-to-be-exiting SEC Chairman Gary Gensler, following Trump's election and Republican control of Congress.
The CFTC is often referred to as the 'sister' of the SEC, with its congressional mandate to regulate the $20 trillion U.S. derivatives market, which includes futures, options trading, and physical commodities such as gold, oil, and wheat.
Similar to the SEC, the CFTC has the authority to set market rules and take enforcement actions, but because the derivatives market is primarily dominated by professional institutional investors, which is considered more adept at managing risk, the CFTC is generally seen as having a lighter regulatory touch than the SEC.
On December 23, 2022, at the headquarters of the Commodity Futures Trading Commission (CFTC) in Washington, D.C. (Photo: Ting Shen/Bloomberg, provided by Getty Images)
CFTC may take over the regulation of spot markets for Bitcoin, Ethereum, and others
After Trump's inauguration, as the influence of the crypto industry in Republican politics grows, the CFTC's role may soon expand to include regulating the spot markets and trading platforms for digital assets considered commodities (like Bitcoin and Ethereum). According to sources familiar with Trump's team's thinking, despite there being over 50 million holders of digital assets, key figures in the new administration believe that looser regulations are needed to promote innovation in crypto businesses, including blockchain technology, which is seen as a potentially transformative technology for eliminating costly middlemen in commercial transactions.
"With sufficient funding and appropriate leadership, I believe the CFTC can quickly initiate regulatory work on digital commodities on the first day of President Trump's term," former CFTC Chairman Chris Giancarlo told FOX Business.
Granting the CFTC regulatory authority over the spot markets for Bitcoin and Ethereum (which account for about 70% of the global crypto market), as well as potentially other tokens considered digital commodities, would also grant it oversight over trading platforms for these assets. If implemented, this initiative would be an important step toward providing regulatory clarity for companies and individuals engaged in trading these two largest cryptocurrencies by market capitalization, as currently, no regulatory body has clear jurisdiction over these spot market trades.
On July 27, 2024, Republican presidential candidate and former President Donald Trump gestures during the 'Bitcoin 2024' event in Nashville, Tennessee. (Photo: Kevin Wurm/Reuters, provided by Reuters)
The regulatory divide and enforcement dilemmas between the SEC and CFTC
Due to the uncertainty surrounding the classification of digital assets and the unwillingness of both the SEC and CFTC to establish specific rules, the two agencies primarily regulate the field through enforcement actions. Under Gensler's leadership, the SEC has conducted a comprehensive crackdown on the crypto industry over the past three years, emphasizing his belief that most cryptocurrencies, aside from Bitcoin, are securities. This position has made Gensler and the SEC unpopular in the U.S. crypto industry, leading the industry to prefer the CFTC as the primary regulatory body.
The SEC has not commented on the matter.
Known as the 'father of crypto,' Giancarlo served as CFTC Chairman during Trump's first term and is currently being considered for the new administration's 'crypto czar' position — a newly established but not yet clearly defined role intended to assist in executing crypto policy and potentially oversee an industry-led advisory committee.
On November 8, 2023, former Commodity Futures Trading Commission (CFTC) Chairman Chris Giancarlo spoke at the D.C. FinTech Week event in Washington, D.C. (Photo: Ting Shen/Bloomberg, provided by Getty Images)
Funding and legal needs for the CFTC to expand its regulatory role
Giancarlo has long called for his former agency to play a larger role in digital currency regulation. In 2022, he wrote to the Senate Agriculture Committee overseeing the CFTC, supporting the agency's acquisition of regulatory authority over the crypto spot market and emphasizing the CFTC's early engagement with digital assets since classifying Bitcoin as a commodity in 2015. Under his leadership, the CFTC approved futures trading on Bitcoin prices.
The outgoing CFTC Chairman Rostin Behnam of the Biden administration requested additional funding from the Agriculture Committee during a supervisory hearing in July this year to more effectively regulate the crypto market. He noted that about 50% of the agency's enforcement actions this year have targeted crypto companies, which is an "astounding statistic" for an agency without the authority to regulate this industry.
However, to begin regulating fraud and manipulation in the crypto spot market, the CFTC needs congressional approval for additional funding. In 2024, the agency's operating budget is $400 million, less than one-fifth of the SEC's ($2.4 billion), and the CFTC has about 700 employees, far fewer than the SEC's 5,300.
Although the crypto industry generally welcomes the CFTC taking a larger role in digital commodity regulation, many traditional CFTC stakeholders are concerned that granting the agency unprecedented power over certain spot markets could have implications for the regulation of other physical and agricultural commodities, which are typically overseen by other agencies such as the Department of Agriculture. Giancarlo stated that these concerns need to be addressed with clear language in any new legislation to ensure that the CFTC's spot regulatory authority is limited to digital commodities.
On August 30, 2020, at the Commodity Futures Trading Commission (CFTC) in Washington, D.C. (Photo: Andrew Kelly/Reuters, provided by Reuters)
Reforming SEC culture to promote innovation
Trump's plan to increase CFTC regulation of the crypto industry is part of a broader mission to reshape the relationship between the two main financial regulatory agencies, aiming to encourage them to collaborate on certain crypto policies (such as stablecoin regulatory enforcement). Additionally, Trump hopes to fundamentally reform the SEC's culture after three years of extensive rule-making and pushing a progressive agenda under Gensler's leadership, which has resulted in the departure of many senior officials and ongoing tensions with employee unions.
"The SEC needs to do a lot of work — many top talents have left, so we need to get it back on track and refocus its mission on an agenda that supports innovation," Giancarlo said. He succeeded Gensler as CFTC Chairman in 2017, having previously been a strong candidate to replace Gensler as SEC Chairman, but he clearly told Trump's transition team he did not want to "clean up the mess left by Gary Gensler for a second time."
On July 28, 2023, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler attended a Financial Stability Oversight Council meeting at the U.S. Treasury. (Photo: Kevin Dietsch/Getty Images, provided by Getty Images)
Future SEC leaders
It is currently unclear who Trump will nominate to lead the SEC, but sources close to the transition team indicate that support for cryptocurrencies is not the only criterion under consideration for candidates. Besides cryptocurrencies, the SEC also oversees the $100 trillion securities market, which includes stocks, bonds, mutual funds, and treasury securities.
"The SEC has a solid foundation, but its next leader needs to have exceptional policy skills and management capabilities to make it a contributing part of the administration's agenda again," Giancarlo said.
