Still on the topic of digital asset regulation, more federal regulators, including the Commodity Futures Trading Commission (CFTC), are adding resources to help police fraud in the digital asset space.
Bitcoin And Other Cryptocurrencies Defined As Commodities
In 2014, the CFTC made its first official statement on its jurisdiction over “virtual currencies” that included digital assets such as cryptocurrencies. In that year, then Chairman Timothy Massad testified before the Senate Committee on Agriculture, Nutrition, and Forestry. The commission exchange act broadly defined a commodity to include derivatives contracts, interest rate indices, stock market indices, currencies, etc. The commission clearly stated that derivatives contracts that are based on virtual currencies are within their responsibility.
Again, in 2015, the CFTC brought its first enforcement action that included virtual currencies. In this enforcement, the commission made it clear that bitcoin and other cryptocurrencies are clearly included in the definition of commodities. Still, all market participants stayed silent.
Finally, in 2018, the CFTC’s classification proposal was challenged in court, and the courts granted the commission the authority to classify digital assets and cryptocurrencies under the commodities definition. After two court cases, it was noted that where a futures market exists for a good, service, right, or interest, it may be regulated by the CFTC as a commodity, without regard to whether the dispute involves a futures contract and without regard to whether that specific type was the subject of a futures contract.
The CFTC’s jurisdiction over the digital asset markets has been limited to policing fraudulent and manipulative activities involving digital assets traded in interstate commerce and derivative contracts.
Current CFTC Chairman, Rostin Behnam, however, is looking to expand the agency’s remit.
Adjustments to Control Fraud in Crypto Markets
At a confirmation hearing for Behnam last October, Chairman Behnam stated that the CFTC was ready to take primary responsibility for digital asset enforcement. “I think it’s important for this committee to reconsider and consider expanding authority to the CFTC,” Behnam also said in May this year.
In response to Chairman Behnam’s remarks, some members of Congress have introduced bipartisan legislation, such as the Digital Commodity Exchange Act of 2022 (DCEA) and the Responsible Financial Innovation Act (RFIA), which each give the CFTC regulatory authority over spot markets for digital assets.
However, due to the surging number of cases related to digital assets, Behnam has indicated that the CFTC will add resources and increase efforts to address digital asset-related fraud and manipulation cases.
The CFTC will continue to crack down on digital asset-related fraud and intends to add more staff to help in these efforts. The extent of the CFTC’s power to oversee the digital asset markets is still uncertain. As a result, the sector should anticipate that the CFTC will pursue more enforcement actions involving digital assets in the future, particularly if Chairman Behnam’s requests for more authority and money are granted.
