The United States has persistently stumbled in delivering clear regulatory guidance for digital assets. The Securities and Exchange Commission (SEC) presides over instruments and assets deemed as securities, while the Commodity Futures Trading Commission (CFTC) regulates the trading of derivatives on commodities.
This landscape leaves a regulatory gap for digital assets that defy the categorization of securities or commodity-based derivatives. Amid this regulatory chaos, experts assert that stakeholders must resist succumbing to a bearish narrative.
However, former SEC General Counsel and former Commissioner at CFTC, Dan M. Berkovitz, believes there is a need for further legislative amendment to the securities or commodities laws regarding market regulation with respect to digital assets.
While speaking exclusively to CryptoPotato, Berkovitz said,
“The existing commodity and security laws are adequate to regulate the derivative and securities markets. These laws are sufficiently flexible to accommodate new technologies, such as cryptocurrencies and blockchain-traded assets.”
No Rift Between CFTC and SEC on Digital Assets?
Between 2019 and 2023, the US cryptocurrency industry invested $56.44 million in lobbying, with $20.2 million spent this year alone, comprising 19.7% of Wall Street’s lobbying total. Despite these substantial numbers, U.S. watchdogs, particularly the SEC, have heightened oversight, demonstrating a paradox between industry influence and regulatory scrutiny.
Earlier this month, CFTC’s Chairman Rostin Behnam called on Congress to assume a more central role in guiding federal agencies toward establishing a regulatory framework for cryptocurrencies.
Behnam emphasized the historically effective collaboration between the CFTC and the SEC while acknowledging that digital assets are unique. This statement came amidst an observed divergence between the two regulatory entities, with growing tensions over the past few years regarding the appropriate jurisdiction of cryptocurrencies within the agencies.
However, Berkovitz does not think there is a “rift” between the CFTC and the SEC in regulating digital assets. While asserting that there is an urgent need for Congress to provide additional authority over non-security digital assets in the spot market, the former SEC General Counsel said,
“The CFTC and SEC coordinate on cryptocurrency issues in the same manner they coordinate on other issues where their authorities overlap. The two agencies do not always have identical views on issues – it is normal to have some differences, given their respective jurisdictions – but I do not believe any such differences with respect to cryptocurrencies rise to the level of a “rift.”
Merkle Science CEO Mriganka Pattnaik also doubled down on the ongoing divide between the two regulators and said,
“Legislation is not a silver bullet. Rushing to pass a half-baked policy that aims to close the regulatory gap in digital assets will cause more harm than good. The new regime may suffer from an overlapping mandate with other agencies, impede business and innovation from legitimate exchanges, and set unclear precedents and practices.”
Pattnaik also added that the legislation needs to rectify the regulatory void by clearly defining the roles of both the CFTC and the SEC in any prospective regulatory framework, simplifying the review process at its core.
He contends that any proposed listing categorized as a security by the SEC should be excluded from eligibility for a CFTC-licensed facility, instead falling under the purview of existing securities laws. Simultaneously, the CFTC would be tasked with assessing whether the asset aligns with its criteria for listing, disclosure, and adherence to core principles.
Congress Plays a Crucial Role
The Lummis-Gillibrand bill, initially rejected but now gaining bipartisan support and momentum, has been a welcome surprise for the industry. Recent events, including FTX founder Sam Bankman-Fried’s conviction, contribute to the bill’s resurgence, signaling a recognition among lawmakers for necessary regulations to protect Americans.
With the regulatory gap reaching a “tipping point,” Pattnaik said that Congress must reach across the aisle and generate bipartisan support to pass the bill, advocating through a simple idea: They must act now, or more consumers will be harmed.
“I believe these rampant scams and abuses give the US more urgency to provide regulatory clarity, as a world leader in regulating innovation. This mandate is aligned with every government’s imperative to protect its citizens, and the United States has generally been extremely responsive to new threats.”