Commodities Futures Trading Commission (CFTC) chief Rostin Behnam has called for tighter cryptocurrency regulation in the U.S.
On Thursday, Behnam attended a Senate Agriculture, Nutrition and Forestry Committee meeting and discussed the collapse of the crypto exchange FTX.
During the meeting, Behnam argued that it would be difficult to ban digital assets in the U.S. altogether, even if these assets are risky. He pointed out that although the government had implemented restrictions on U.S. residents, two percent of FTX customers came from the country.
“Folks will find a way to get exposure to offshore entities and activities, even if it’s prohibited in the U.S.—and we have to do something about that,” Behnam said.
Behnam proposed that his organization be given the authority to draft laws and oversees crypto trading activities. He said all exchanges operating in the U.S. need to be registered and stressed the importance of having a direct relationship with custodians to prevent illicit transactions.
FTX was one of the largest exchanges in the industry before going bankrupt following a liquidity issue. The Bahamian-based crypto exchange was under scrutiny due to alleged mismanagement of customer funds.
FTX former CEO Samuel Bankman-Fried used customer funds to make bets through Alameda Research, his other company. However, Alameda also traded on FTX, meaning that Bankman-Fried used customer funds to bet against their owners.
The court filing also revealed that the company did not have a board of directors overseeing its operations. Bankman-Fried was able to move funds without the knowledge of investors and employees.
It is unknown whether former FTX customers can receive their money back due to the lack of regulation protecting crypto consumers. This event creates distrust in the crypto industry, not to mention its contagion effect.
Behnam argued that despite the Securities and Exchange Commission (SEC) holding the authority to implement basic safeguards, a regulatory gap is still present in the crypto industry. He said lawmakers did not have the “luxury” to wait for the gap to close.
He argued that the CFTC could bridge the gap if given more authority. He specifically said that his agency’s inability to register cash market exchanges and monitor rating agencies were the gap in the current law.
Behnam brought up the LedgerX case as an example of CFTC’s success. LedgerX is a subsidiary of FTX, but unlike other subsidiaries of its parent company, the company has remained solvent due to the separation of customer funds.
When asked about possible conflicts between his agency and the SEC, Behnam said CFTC’s focus was to fill the regulatory gap and not a "power grab." He added that the responsibilities between the two agencies in the regulatory landscape would be similar, adding that interagency cooperation was not unheard of.
In addition to the lack of authority, the CFTC’s efforts to regulate the crypto market are also overshadowed by a continuous debate about whether digital assets should be considered commodities.
Previously, Behnam said that Bitcoin and Ether could be considered commodities. However, he backtracked during Thursday’s senate hearing, saying that only Bitcoin could be considered a commodity due to its pure decentralized nature. Meanwhile, other digital assets should be considered securities. Therefore they fall under the SEC’s jurisdiction.