The U.S. Commodity Futures Trading Commission (CFTC) is preparing its first formal regulatory package for cryptocurrency markets, moving away from the “regulation through sanctions” approach that was prominent in the previous period. Under two new regulations called Regulation Crypto Asset Transactions (CTX) and Regulation Crypto Asset Markets (CAM), the agency aims to create clear federal-level rules for crypto asset trading platforms.
The CFTC stated that the cryptocurrency sector in the US has developed under regulatory uncertainty for many years, and although Congress has been unable to enact comprehensive cryptocurrency market legislation, the CFTC and the US Securities and Exchange Commission (SEC) can establish rules for the market within their existing legal powers.
The organization stated that under the previous administration, the CFTC and SEC primarily focused on enforcing regulations against cryptocurrency exchanges, custody service providers, and software developers, arguing that new rules appropriate to the sector’s characteristics were not created. According to the statement, this approach led many crypto companies to relocate outside the US.
The CFTC cited the bankrupt FTX exchange as an example. It noted that the founders of FTX, a Bahamas-based company, had misused approximately $8 billion in customer funds, and recalled that legal proceedings were initiated by the CFTC and SEC following the company’s collapse.
The organization also noted that platforms like FTX, BlockFi, and Voyager Digital operate in the US mostly through state-level money transfer licenses. However, it was pointed out that these licenses are designed for payment services rather than financial markets and vary between states.
According to the CFTC, federal market regulations include broader standards for trading platforms to prevent market manipulation and abuse, ensure transparent and orderly transactions, prevent conflicts of interest, and protect client assets.
The agency stated that despite the bankruptcy of several of FTX’s offshore and state-regulated companies, customer assets held by its CFTC-registered subsidiary remained segregated and secure.
The new regulatory initiative comes after the US Senate failed to advance the cryptocurrency market regulation bill known as the Clarity Act this month. The CFTC, along with CTX and CAM regulations, plans to create a federal framework for the cryptocurrency market within its existing powers without waiting for Congress to pass new legislation.
The regulations are also said to be a continuation of a joint comment made by the CFTC and SEC earlier this year, which stated that a broad group of crypto assets, including Bitcoin and Ethereum, are not securities and fall under the regulatory purview of the CFTC.
Under CTX and CAM regulations, new standards will be established that CFTC-registered exchanges must adhere to when listing such crypto assets.
However, unlike the Clarity Act, the regulations will not mandate that crypto assets can only be traded on platforms registered with the CFTC. The CFTC acknowledges it cannot impose such a requirement unless it receives new authorization from Congress.
In contrast, the new system will offer crypto exchanges wishing to operate in the US the option of operating under a single federal regulatory framework. These CFTC-registered platforms will be allowed to offer individual investors margin, leveraged, or finance-backed crypto trading, unlike state-licensed spot exchanges.
The CFTC also criticized the “come and register” calls made to crypto companies during the tenure of former SEC Chairman Gary Gensler. According to the institution, companies needed to treat the crypto assets on their platforms as securities in order to register with the SEC and comply with outdated regulations designed for markets quite different from the infrastructure of the crypto market.
The CFTC stated that the new approach aims to create a unique regulatory system that takes into account the differences between crypto assets and other commodities.
The agency stated that the CTX and CAM regulations are only the beginning of a broader regulatory process for the crypto market, while acknowledging that regulations implemented unilaterally cannot permanently replace a comprehensive crypto market law to be enacted by Congress.
*This is not investment advice.
