Making Comprehensive Crypto Policy Out of Regulatory Patchwork

Suggestions that the CFTC is the crypto industry's “regulator of choice” and more susceptible to capture do not hold up, according to former CFTC Director of Enforcement Aitan Goelman.

Despite FTX’s U.S. bankruptcy filing, the crypto exchange was largely overseen by Bahamian regulators, and the exchange’s American subsidiary, FTX US Derivatives (formerly known as LedgerX), remained solvent throughout the ordeal.

In the wake of FTX’s bankruptcy, there have been renewed calls for urgent action by Congress to establish a comprehensive regulatory framework for crypto. However, these calls have not led to unanimity, or even consensus, among the key stakeholders involved.

The Securities and Exchange Commission (SEC) has maintained that it already possesses regulatory authority over most cryptocurrencies, and that it merely requires additional funding to carry out this responsibility effectively.

In contrast, the Commodity Futures Trading Commission (CFTC) has highlighted the solvency of FTX’s CFTC-regulated American subsidiary as a testament to the effectiveness of CFTC oversight in the crypto domain.

Meanwhile, crypto enthusiasts have countered these arguments by pointing out the presence of fraudsters in virtually all industries, and emphasizing that centralized exchanges like FTX fundamentally contradict the ethos of crypto, which was conceived as a decentralized form of finance that eliminates the need for trust in institutions or other market participants.

Interestingly, even some staunch crypto skeptics have cited the limited contagion from FTX’s collapse as a reason to refrain from regulating crypto. They contend that integrating crypto into the mainstream financial system would essentially grant it government approval, which could entice more retail investors to engage in speculative crypto activities. As a consequence, the entire economy would be subjected to the volatility, money laundering, fraud and manipulation that are both pervasive and, to some crypto critics, an inherent aspect of crypto.

This regulatory debate underscores the adage that “where you stand depends on where you sit.” For instance, SEC Chair Gary Gensler, who was an ardent advocate for the CFTC’s expansive remit during his tenure as CFTC chair in the Obama Administration, now asserts that nearly all crypto qualifies as a “security.”

On the other hand, former SEC Chair Mary Jo White and former Enforcement Director Andrew Ceresney, who are both currently representing Ripple in its legal battle against the SEC, are among those arguing for a more limited interpretation of a “security.”

It is also worth noting that crypto companies continue to evade U.S. jurisdiction, primarily by establishing their headquarters offshore (e.S.B.F.’s crypto exchange, FTX, was headquartered in the Bahamas) and employing geo-blocking techniques to restrict access to their platforms by individuals whose computers are identified as being located in the U.S. However, it is crucial to note that VPNs can easily circumvent these geo-blocking measures.

In the absence of legislation and regulation, the legal landscape surrounding crypto continues to evolve through litigation and the interpretation of various enforcement actions. Nevertheless, true clarity will not emerge incrementally through the legal system; it will require decisive legislative action.

Ironically, FTX’s collapse has, in some ways, complicated the path to Congressional action. In addition to the now-poisonous association with S.B.F., both draft bills are facing renewed criticism for granting primary regulatory jurisdiction to the CFTC instead of the SEC.

However, suggestions that the CFTC is the crypto industry’s “regulator of choice” and more susceptible to capture by the industry simply don’t hold up against the facts. In 2022, more than 20% of the agency’s enforcement actions were related to crypto. Furthermore, the CFTC sought – and, more often than not, successfully obtained – increasingly significant sanctions.

Under its current funding structure, the agency undoubtedly does not have the resources to be fully effective. However, if any legislation retains a grant to the CFTC of authority to levy user fees on crypto actors, the agency’s efforts in the crypto sector will be even more robust.

Disclosure

Please note that ourprivacy policy,terms of use,cookies, do not sell my personal information CoinDesk is anaward-winning strict set of editorial policies. CoinDesk was acquired Bullish, Block.one; both companies haveinterests