The heads of the Senate Agriculture Committee presented a invoice on August 3 to make the Commodity Futures Trading Commission (CFTC) the primary regulator of digital assets that are commodities.
The CFTC currently regulates the market for derivatives such as futures and swaps, but not the underlying commodities.
According to the bill, the CFTC would gain “exclusive jurisdiction” over cryptocurrencies that qualify as commodities. The bill proposes to amend the definition of “commodity” in the Commodity Exchange Act to include “digital commodity,” which includes the two largest cryptocurrencies – Bitcoin (BTC) and Ethereum (ETH) – and any other tokens not considered securities.
The CFTC would oversee all digital commodity exchanges except those where the digital assets are used solely for the purpose of buying or selling goods or services, in accordance with the law.
The bottom of the invoice
The Digital Products Consumer Protection Act of 2022 would require all crypto businesses dealing in digital products to register with the CFTC. The bill proposes that brokers, custodians and trading platforms be registered in separate categories, although mining companies are not required to register.
The bill will also require crypto-trading firms to disclose certain information about digital commodity contracts listed on their platform. This would include the structure and operating system of the commodity, trading volume and volatility, according to the bill.
The legislation will empower the CFTC to establish rules governing margined, leveraged or funded digital commodity trading, while ensuring the prevention of fraud. The Commission will also be responsible for developing consumer protection rules, such as requiring commercial companies to disclose conflicts of interest, clearly indicating material risks and setting standards for the marketing of these platforms.
With growing concern about the energy consumption of digital assets, the CFTC would be required to maintain a report on the amount of energy used in the creation and transfer of the assets, as well as the sources of energy. The Commission would be required to publish the energy consumption report on its website, according to the bill.
As the Securities and Exchange Commission (SEC) vies for the role of primary regulator of cryptocurrencies, the new bill will allow crypto platforms registered with the CFTC to also register with the securities regulator.
A wish come true for the CFTC, even partially
The Senate Agriculture Committee, which introduced the bill, had asked the CFTC to provide more guidance on digital assets in January.
During a hearing before the same committee in February, CFTC Chairman Rostin Behnam called on lawmakers to introduce laws that would grant the Commission the power to regulate spot markets for certain cryptocurrencies. Although the current bill does not go that far, it is a step in the same direction.
Coin Center, an industry think tank, backed the bill in a blog post, but warned that:
“There is a serious risk of overspending and unintended consequences when registration is mandatory rather than optional.”
Coin Center also warned that the current definition of “dealer” in the bill is too broad and needs clearer language to ensure that “ordinary buyers and sellers of cryptocurrency are also not drawn into a regime of ‘registration”.
It should be noted that the crypto industry longed for clear definitions of digital products and digital securities. This would clarify for crypto platforms which agencies – the CFTC or the SEC – they must register with. However, while the new bill defines “digital products,” the industry still has to wait for a definition to determine which digital assets are securities.