Regulation is the most significant focus for the cryptocurrency industry at this point. For the past few years, companies and industry heavyweights have looked into improving the regulatory clarity of cryptocurrencies.
Despite the efforts, there haven’t been many encouraging signs that the regulatory understanding of cryptocurrencies will change. It especially doesn’t help that regulators are now fighting over who will get complete oversight of the crypto industry.
The CFTC Draws a Clear Line
As many have known, the agency that should spearhead anything as far as crypto regulation is concerned is the Securities and Exchange Commission (SEC). The agency has been at the forefront of regulatory action and oversight for a while, with most investment companies and exchanges turning to it for guidance. However, a fellow agency is now calling the SEC’s fitness to govern crypto into question.
Earlier this month, Christopher Giancarlo, a former director at the Commodities Futures Trading Commission (CFTC), stated that the SEC shouldn’t be the agency to regulate the crypto space. In a tweet, Giancarlo explained that the CFTC is the only regulatory agency in the United States with the experience and know-how to regulate markets like crypto.
Giancarlo drove his point home by saying that the Biden administration will understand his point and make the necessary changes if it is truly serious about crypto regulations.
The sentiment was shared by Brian Quintenz, the agency’s current commissioner, who also said on Twitter that the CFTC should be the agency to regulate the crypto space - not the SEC.
In his tweet, Quintenz explained that cryptocurrencies are commodities. As such, they should be under the CFTC’s jurisdiction. The regulator explained that cryptocurrencies are in the same class as assets like gold and oil. Since they all aren't securities, the SEC has no business regulating them.
The SEC’s Plans to Oversee Crypto
All of the comments appeared to have been in response to Gary Gensler, the SEC’s commissioner, who called for a more robust crypto regulatory regime in the United States.
In an interview with Bloomberg, Gensler pointed out that the SEC is looking to install safeguards for crypto investors across the United States. He pointed out that anyone can decide to speculate as they see fit. However, it is important for the country to protect these people against fraud.
Gensler went even deeper, identifying several crypto-related policy positions that his SEC has taken. These positions relate to matters such as decentralized finance (DeFi), token offerings, exchange-traded funds (ETFs), crypto custody, stablecoins, and lending platforms. The regulator explained that the best and most straightforward way for the SEC to achieve oversight will be to implement regulations for crypto exchanges and trading platforms.
Gensler is also looking into the possibility of the SEC moving deeper into the crypto lending market. Regulations have already been swift, with companies like BlockFi coming under the SEC’s radar.
Crypto: Securities or Commodities?
The question at the center of this dispute is the very nature of cryptocurrencies in the first palace. Some have pointed out that cryptocurrencies are securities, especially since a vast majority of them can be - and are - traded across different platforms. However, others have pointed out that cryptocurrencies are commodities - tokens that have use and whose value can be exchanged between parties.
Usually, this question has come in the form of Initial Coin Offerings (ICOs). However, if the CFTC will be looking to steal crypto from the SEC’s purview, it will need to prove beyond doubt that cryptocurrencies are actually commodities.
For now, the agency is getting some support. After Quintenz had made his statement, the U.S House Committee on Agriculture supported him. The committee’s official Twitter account argued that crypto has become “bigger than the SEC,” and that Congress will need to rewrite the rules to protect investors from the risky moves they may be making in their approach to the digital economy.
It also doesn’t help that the SEC is getting criticized from within. Earlier this month, the agency settled a case with top crypto exchange Poloniex. The case involved allegations from the SEC that Poloniex had operated in the United States between July 2017 and November 2019 without registering with the SEC.
After the parties settled for $10 million, Hester M. Pierce, one of the SEC’s commissioners, slammed the agency for its crypto laws. In a statement, Pierce criticized the SEC for using opaque crypto laws and failing to create a clear framework for the industry. She highlighted several important areas that the SEC has thus far failed to clarify, including how to determine if an asset is a security.
“Given how slow we have been in determining how regulated entities can interact with crypto, market participants may understandably be surprised to see us come onto the scene now with our enforcement guns blazing and argue that Poloniex was not registered or operating under an exemption as it should have been,” Pierce said in part. She added that if Poloniex had tried to register with the SEC, it would probably have had to wait for so long. So, the SEC is wrong for penalizing the company.
For now, however, the SEC remains the primary regulator for anything that has to do with crypto and investments. This is proved by the agency’s continued purview of ETFs. This year alone, several companies have filed applications to launch ETFs with the SEC. Many of them are looking to use cryptocurrencies’ increased allure towards big investors and Wall Street names as a forum to argue that investors need an ETF. So far, none has been cleared to operate.