Cryptocurrencies have taken off with little regulation—until now.
A U.S. Senate committee has proposed legislation that would assign oversight of the two largest cryptocurrencies, Bitcoin and Ethereum, to the federal agency that regulates milk futures and interest-rate swaps.
The committee is planning to introduce a bill that will authorize the Commodity Futures Trading Commission (CFTC) to control spot markets for digital commodities, a new asset. Right now the CFTC has authority to regulate derivatives, such as futures and swaps, rather than underlying commodities.
Crypto regulation has been a conversation amongst federal agencies for years. It has been 13 years since the creation of Bitcoin, the first cryptocurrency, and it remains largely unregulated by the federal government, leaving investors without key protections from fraud and market manipulation, says The Wall Street Journal’s Paul Kiernan.
Many crypto advocates oppose the federal government taking on a regulatory role. They say regulation will stifle growth and prevent cryptos from becoming the dramatic, decentralized asset class that many hope they can become.
Cryptocurrencies had a rough few months this year before taking off, heating up the competition of cryptocurrency jurisdiction. Policymakers believe there is a need for guardrails in crypto. The competition also reflects the industry’s ramped-up lobbying presence in Washington and its push to reach more mainstream investors through Super Bowl ads and other high-profile marketing initiatives, according to The Wall Street Journal.
“When there’s a topic as hot as crypto, everybody wants a seat at the table,” says the Brookings Institution’s Aaron Klein, who focuses on financial regulation. “The question is, are we going to have regulatory turf paralysis?”
There have been multiple proposals to make regulation rules for cryptocurrencies in recent months. In June, Sen. Cynthia Lummis and Sen. Kirsten Gillibrand made a proposal that would create exemptions for cryptocurrencies in securities laws, banking statutes, and tax code. In July, leaders of the House Financial Services Committee said they were working on a bill to grant the Federal Reserve a greater role in regulating some stablecoins, crypto tokens pegged against the dollar and other official currencies.
“Four years ago when I started this job, there were some people that just thought this thing was all going to blow up and go away, that this was sort of a passing fad,” says Blockchain Association executive director Kristin Smith. “Now, we’ve got all these regulators suddenly vying for control.”
The legislation would seek to leave securities out from the definition of digital commodities, making it narrower in scope than that of other recent crypto-related bills.