Washington long debated whether crypto was the future of finance or a fad. American entrepreneurs built markets that evolved faster than governing rules. Congress considered legislation to clarify crypto asset treatment, but failed to send a bill to the president.
Consequently, the CFTC and SEC have statutory authority to establish a federal crypto regulatory market structure. Today, the CFTC proposes its first round of regulations for crypto markets. Under the prior administration, the agencies targeted exchanges, custodians, and developers through enforcement rather than rulemaking.
This caused many firms, including Sam Bankman-Fried’s FTX, to flee to foreign shores. FTX imploded after founders fraudulently appropriated approximately $8 billion in customer funds for proprietary investments. Only after the firm failed did the CFTC and SEC charge FTX and its founders for wrongdoing.
FTX and other failed platforms, like BlockFi and Voyager Digital, operated via state money-transmitter licenses. Unlike federal agencies, state agencies accommodated crypto intermediaries for over a decade. However, state laws are intended for payment services, not financial markets historically regulated by the CFTC and SEC.
Federal regulations require trading venues to meet stringent standards to deter manipulation, ensure transparent trading, prevent conflicts of interest, and safeguard customer funds. Most offshore and state-regulated FTX entities went bankrupt, but customer property held by its CFTC-registered subsidiary remained segregated and secure. The lesson should be obvious: America needs prophylactic rules that ensure both innovation and protection.
Instead, regulatory uncertainty became a defining feature. Following the Senate’s failure to advance the Clarity Act, the CFTC proposes rule-making concerning Regulation CT X and Regulation CAM. These would establish requirements for CFTC-registered exchanges offering crypto assets like bitcoin and ether.
Unlike the Clarity Act, these regulations would not require assets to trade on registered platforms without congressional action.
Source: Wall Street Journal Markets · Summarized by HeadlinesBriefing