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A Senate proposal would give CFTC responsibility for policing bitcoin, ethereum

A bipartisan proposal from the leaders of the Senate Agriculture Committee would clarify the CFTC’s oversight of the two largest cryptocurrencies

Sen. Debbie Stabenow (D-Mich.) speaks to reporters in April. (Sarah Silbiger for The Washington Post)
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The Commodity Futures Trading Commission would take the leading role in overseeing the two largest cryptocurrencies and the platforms where they are traded under a new bill from Sens. Debbie Stabenow (D-Mich.) and John Boozman (R-Ark.).

Oversight of the remaining cryptocurrencies would be divided between the CFTC and the Securities and Exchange Commission, though the process for making those determinations is not yet clear.

The two agencies have been jockeying for more authority over digital assets, contributing to confusion in Washington over how to classify and regulate cryptocurrencies and the economy that has sprung up around them. The bill aims to provide some clarity by deeming as commodities both bitcoin and ethereum, which together account for roughly two-thirds of the cryptocurrency market.

That would subject bitcoin and ethereum to regulation by the CFTC, which already oversees futures markets for both. And online platforms that allow investors to trade the digital tokens, such as Coinbase, would be required to register with the agency.

Stabenow — chair of the Senate Agriculture Committee, which oversees the CFTC — said in a statement that crypto markets “lack the transparency and accountability” investors expect from traditional financial markets. “That’s why we are closing regulatory gaps and requiring that these markets operate under straightforward rules that protect customers and keep our financial system safe.”

In addition to Boozman, the top Republican on the agriculture committee, two other members of the panel, Sens. Cory Booker (D-N.J.) and John Thune (R-S.D.), are co-sponsoring the measure. Stabenow, in a Wednesday press call, said the committee could mark up the bill as soon as September.

The bill joins an increasingly crowded field of legislative proposals for regulating the trillion-dollar digital asset marketplace, a priority that has taken on greater urgency after the recent implosions of several high-profile crypto projects devastated tens of thousands of retail investors. Leaders of the House Financial Services Committee are working with the Treasury Department on a bill to subject issuers of stablecoins to banklike oversight, though they scrapped plans for a speedy markup late last month over ongoing differences with the draft.

And Sens. Cynthia M. Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) in June unveiled what they billed as a comprehensive plan to regulate the industry. Their proposal handed primary responsibility for the industry to the CFTC, but unlike the bill from Stabenow and Boozman, it would make it optional for crypto exchanges to register with the agency.

Crypto industry scores a big win under long-anticipated Senate bill

Both bills would allow the CFTC to assess fees on crypto industry players to fund an expanded budget. The agency, roughly a sixth the size of the SEC, already is tasked with overseeing a swath of financial markets, from grain and oil futures to more complex products.

Crypto interests for months have been lobbying lawmakers to empower the CFTC as their top regulator. They say the regulator would give them friendlier treatment than the SEC, where Chair Gary Gensler has taken an aggressive public line toward the industry.

Boozman, in the Wednesday press call, said the industry “almost universally” prefers to be regulated primarily by CFTC, a fact he said will smooth the measure’s path forward in the Senate. “It makes it a lot easier on members when you don’t have friends who are all over the place,” he said.

CFTC Chairman Rostin Behnam likewise is advocating a bigger role for his agency. In a speech at the Brookings Institution last month, he said federal and state regulators sharing responsibility in a “patchwork blanket” approach “is increasingly proving inadequate” as the crypto market rapidly evolves.

An SEC spokesperson declined to comment on the bill; the CFTC did not respond to a request for comment.

Stabenow and Boozman said the two agencies need to share oversight responsibilities and coordinate how to do so. “We’re not defining what a security is,” Stabenow said. “I have great confidence in Chairman Gensler to be able to use his authorities... We’re not trying to get beyond our jurisdiction.”

The proposal is drawing positive early reviews from the industry — and at least one consumer advocate. Blockchain Association executive director Kristin Smith in a statement said she was encouraged to see “the bipartisan desire to give the CFTC the clarity it needs to oversee crypto spot markets.”

And Todd Phillips, director of financial regulation and corporate governance at the liberal think tank Center for American Progress, called the Stabenow-Boozman proposal “a great bill.”

“It provides a regulatory structure around crypto commodities without taking away authority from other agencies, like the SEC,” he said in an interview. “It specifically requires the registration and regulation of brokers, puts in place investor protection rules and puts up a framework around this market to ensure investors aren’t taken advantage of.”