Commodity Futures Trading Commission (CFTC) chief Rostin Behnam has said that his agency’s “greatest accomplishment” is its crypto enforcement actions instead of being recognized as the “favorable” regulator for the nascent industry.
For years, the crypto industry has perceived CTFC as more “open to innovation” than the U.S. Securities and Exchange Commission (SEC), which has been looking to reinforce regulations for crypto stakeholders.
However, the CTFC recently increased the intensity of its enforcement actions on the crypto industry, causing the public’s initial perception to wane. In this fiscal year, about 20 percent of the CFTC’s enforcement actions were against crypto agencies.
Last September, the CFTC filed a lawsuit against bZeroX, a decentralized blockchain protocol, and its founders. The agency accused bZeroX of servicing illegal trading, saying that the suit was a part of the agency’s effort to “protect U.S. customers in a rapidly evolving decentralized finance environment.” Crypto stakeholders criticized the move, insisting that the government body had overstepped the law.
Behnam said his agency took action after receiving insider tips as it does not have sufficient resources to perform data analytics and investigations. He described the CFTC’s current method of operation as regulating “through a pinhole.”
“If we had more funds, if we had more personnel, we could bring more of this fraud and manipulation to light,” the chief said.
Despite the CFTC not playing "fast and loose” in enforcing commodities laws within the crypto industry, Behnam said that the agency aimed to pull crypto exchanges within its jurisdiction by applying existing laws creatively.
Congress is considering two bills that can expand the CFTC’s authority and provide financial support to monitor the crypto spot trading market. According to Behnam, added jurisdiction and financial resources would enable the agency to clear the market of fraudulent conduct.
The bill is also supported by the Financial Stability Oversight Council (FSOC), which argued that regulating crypto spot trading could eliminate “abusive practices” and conflicts of interest. Assets in spot trading are not categorized as security and therefore do not fall under the SEC’s jurisdiction.
Challenges in regulating crypto
Tufts University associate professor Josephine Wolff wrote that the U.S. government was “caught in two extremes” in addressing the crypto regulation—not wanting to restrict the growth of the lucrative industry but unwilling to let illegal activities happen within the sector.
Earlier this year, President Joe Biden signed an executive order to regulate the crypto industry within the U.S. Biden pledged to support the development of the crypto industry while restricting its illegal uses. This executive order encompasses all digital assets, including cryptocurrencies and non-fungible tokens. Until September, however, the White House had yet to publish a definitive course of action regarding the order.
Although there is no regulation specifically targeting the crypto industry present at the moment, the U.S. government has extended some existing regulations to address the industry, including the anti-money laundering and Know Your Customer policies. However, Wolff noted that these measures were abysmal in preventing illicit transactions, especially since people can still perform transactions using non-U.S.-based platforms.
Wolff was adamant that while future crypto regulation could only apply to the domestic market, U.S. lawmakers would be able to formulate regulations that affect the global crypto industry.
Several other countries have enforced clear regulations regarding the crypto industry. China bans its citizens from conducting crypto transactions despite developing its own blockchain central bank. El Salvador, on the other hand, has legalized the use of BTC in regular transactions.