CFTC Wants Spot Crypto Authority

I have to admit: I almost fell out of my chair when I read the latest details about the ongoing development of crypto regulation.

Reason? The CFTC or Commodity Future Trading Commission is throwing its hat in the ring to become the regulator of choice when it comes to spot crypto. And they're making some convincing arguments.

So, today we're going to break down what really happened in Washington earlier this month and why every crypto investor and trader should sit up and take notice.

The CFTC Wants Spot Crypto

The U.S. Senate Committee on Agriculture, Nutrition, and Forestry held a hearing that, to me, had a pretty simple set of goals: Figure out what kind of asset crypto is, why it needs to be regulated and who's going to take on the job. While I wasn't foolish enough to hope that all these questions would be answered sufficiently, the committee hearing made a good start.

The hearing, entitled "Examining Digital Assets: Risks, Regulation, and Innovation," held two panels. The first was with the CFTC Chairman Rostin Behnam, and the second was with experts from industry and academia, most notably Sandra Ro, CEO of the GBBC or the Global Blockchain Business Council.

The bi-partisan duo of Chair Debbie Stabenow (D-MI) and Sen. John Boozman (R-AR) made it clear that they were open to expanding the mandate empowering the CFTC. And that expansion could include regulating crypto. And they both admitted there was no time to waste.

According to Stabenow:

We can't afford to wait until the next crisis; Congress must work with regulators and the Biden administration to design a framework that protects consumers and our environment and keeps our markets fair, transparent, and competitive. (Source)

And according to Boozman:

There's a gap in the oversight of digital assets. This poses a danger to the American consumer and could threaten the resiliency of our financial markets if left unchecked. We have an opportunity here to broaden participation in our financial markets, but this must be paired with consistent rules of the road that protect investors and our markets. (Source)

The CFTC Is Up For The Job

CFTC Chairman Rostin Behnam says in no uncertain terms that his team is best suited to handle the regulation of spot crypto:

We are past the stage where digital assets and decentralized financial technologies are a research project, sandboxing what may come in the future. The issues are at the front and center of our thinking at the Commission, in addition to our traditional regulatory, oversight, and enforcement responsibilities. The CFTC is well situated to play an increasingly central role in overseeing the cash digital asset commodity market. (Source)

Right now, the CFTC is charged with regulating commodity futures and derivative markets associated with commodities. But it's not charged with regulating the commodities themselves. For example, the CFTC regulates futures and derivatives on corn, but not the regulation of corn itself. It also regulated futures and derivatives on gold, but not gold itself.

So, charging the CFTC with regulating spot crypto would mean it would take a big step into regulating a commodity itself. And they'd be able to take that step only if the CFTC's designation of spot cryptos like Bitcoin and Ether as commodities holds up. While they've made it clear that's their turf, it's not without debate.

And don't forget: The designation of Bitcoin and Ether as commodities doesn't clear up the status of the multitude of other cryptocurrencies out there. Those that behave like securities, and can pass the Howley Test, for example, would come under the prevue of the SEC. And that would trigger a ton of disclosure and registration requirements that you can bet most crypto and blockchain developers don't want to get saddled with.

Behnam also pointed out that the crypts markets are unique in that they involve a ton of retail investors. He's asking for authority to regulate the spot crypto market, those cryptos that are designated as commodities and not securities. He also wants the authority to drill into the visibility of order books, custody, and execution.

In my opinion, there are important principles missing from the current regulatory framework applicable to digital asset markets that we see in other federally regulated markets, particularly ones that primarily cater to retail investors. A federal regulatory regime may ensure that certain safeguards are in place to address the risks to individual investors, market integrity, and systemic stability. Those safeguards could include pre-trade and post-trade transparency and uniform standards around settlement, data reporting, cyber security, and leverage. (Source)

Right now, crypto spot markets are regulated by the states. And Behnam says that to avoid mission creep and stepping on state's toes, his regulatory authority should be extremely targeted. But in the end, it's best to have a single regulator at the federal level to make all market participants comfortable.

I was also happy to see that CFTC Chairman Rostin Behnam was going to need resources to make his new regulatory responsibilities happen. In fact, the regulator is looking for another $100 million to take on regulation of the spot crypto market. That would be a big bump for his current budget of $300 million.

Welcome Regulation By The CFTC

In my book, charging the CFTC with the regulation of the crypto spot market is a no-brainer. They're already in the game with derivatives on those assets. And the commodity feature of spot crypto makes the CFTC the logical choice.

But beyond that, the hearing also showed a rare glimpse into bi-partisans' law-making that works. So, in a sense, as blockchain and crypto enthusiasts, we're lucky.

Wayne Burritt Contributor

Disclosure: This contributor may own cryptocurrencies mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.

Cryptocurrency Strategies for 2022

SkyBridge Capital Founder Anthony Scaramucci, CoinShares CSO Meltem Demirors, and Seymour Asset Management CIO Tim Seymour join host Melissa Francis, former CNBC, MSNBC, Fox Business, and FOX News anchor, to delve into the nuances of the digital currency market.

Watch the full interview and see more on crypto, inflation, and interest rates from Wall Street titans on Magnifi by TIFIN.

Melissa Francis
Welcome back to Magnifi by TIFIN. Today, we are talking crypto and the best way to incorporate it into a portfolio. Tim Seymour is CIO of Seymour Asset Management, and Meltem Demirors as chief strategy officer at CoinShares. Welcome to both of you.

Melissa Francis
You guys have both been pioneers in crypto. But before we get to that even, I want to get your reaction to what you heard Anthony Scaramucci say. Well, let's start with crypto. I mean, he says he thinks it's going to get to 100,000 in the next two years. What do you think about that?

Tim Seymour
Meltem, do you want to jump in? I'll jump in. Yeah, I think we've seen a ton of volatility in crypto and Bitcoin markets in in the last, probably five years. So the question of calling where 100,000 is the mark, I think the more important dynamic is that prices are moving higher and that the drawdowns of 20% to 40% seem to be somewhat garden variety. I think we're going to get into this conversation, the fundamentals for owning Bitcoin.

Something I also heard Anthony talking about is the regulatory environment around Bitcoin is something that's actually a friend to the pricing, and despite the decentralized nation and some of the ethos and the existential reasons for wanting to own Bitcoin, and I get it. Defi to the moon, but Bitcoin's going higher.
Continue reading "Cryptocurrency Strategies for 2022"

Behind Wells Fargo's Crypto Report

As you know, if you've been visiting here over the past year, we've had a ton of fun looking at how some of the biggest financial powerhouses are approaching cryptocurrency and blockchain investing.

Most recently, investment banking behemoth Goldman Sachs said that Bitcoin (BTC) was likely headed to $100K and above in 2022. When I used a similar calculus to what they did, my numbers were even higher.

We also looked at the bombshell crypto report from Bank of America that said in no uncertain terms that crypto was "too large to ignore." And we also did a deep dive into what consultancy giant Deloitte found when it asked businesses how they felt about the crypto and blockchain space. And the bottom line from that report was that if you're in business and you ignore crypto, you do so at your own peril.

Now, banking giant Wells Fargo has thrown their hat in the ring with what they think about the future of cryptocurrency for investors. And I think you'll be as surprised as I was when I looked under the hood of the report.

So, let's get down to business! Continue reading "Behind Wells Fargo's Crypto Report"

Crypto Regulation Takes A Much-Needed Step

As I told you back in October, one of the best ways to make sure that blockchain and cryptocurrency continue to mature as assets is for moderate and sensible regulation to take place. And I stand by what I said back then:

"Right now, it's still the Wild West when it comes to crypto regulation. Rules are uncertain, murky, and poorly constructed. And while that lack of regulation may appeal to the egalitarian spirit of crypto, it scares investors. And when they're scared, they'll likely put their money in other asset classes. And that's bad for the whole sector."

But I wasn't alone in my call for regulation. Later that same month, I talked about the nitty-gritty behind the bombshell crypto report from financial behemoth Bank of America. And if you dig into the report, you can see that they feel like regulation is a good thing as well:

"Regulatory uncertainty is the largest near-term risk in our view, but regulation may drive increased investor participation over the long term once the 'rules of the road' for digital assets are established."

While there has been lots of talk about doing something from a regulatory standpoint, it looks like regulators are finally putting their money where their mouths are.

Here's what I mean. Continue reading "Crypto Regulation Takes A Much-Needed Step"