CFTC May Seem More Crypto Friendly But There are Red Flags All Over
While we certainly agree and have said the Commodity Futures Trading Commission has been less antagonistic to crypto than the Securities and Exchange Commission, Coindesk is right in saying both regulatory bodies should be met with wariness.
CFTC Chairman Rostin Behnam often engages in pro-crypto rhetoric, but the CFTC is not an ally, insiders say.
Speaking to students at New York University last week, Behnam said he was “cautious to be a cheerleader” for crypto, but described the industry’s explosive growth as “exciting” and “fascinating.”
“I think there’s a few folks who wish this technology might go away, think it might go away, think it might go offshore, but I think there’s a number of reasons from a U.S. perspective that it’s important we engage [with the industry],” Behnam said.
Words aren’t actions, though.
But Behnam is a federal regulator installed by the same president that picked Securities and Exchange Commission (SEC) chief Gary Gensler, who is held up by the crypto industry as its governmental antagonist. Gensler’s SEC is often accused of regulating crypto through enforcement actions, and it’s showing signs that it only intends to speed up that process. While Behnam had been seen as the gentler hand who was less openly scornful of the digital-assets movement, his agency has been waging an enforcement battle that belies that reputation.
“If somebody thinks you're going to get a pass at the CFTC, I think that's a mistaken belief,” said Gary DeWaal, a former CFTC enforcement lawyer now at Katten Muchin Rosenman. “Any violation is going to be met with enforcement actions by either regulator, and they're going to be severe.”
The CFTC itself has also pushed back against the misconception that it will regulate the industry with a lighter touch than the SEC.
“We’ve been very strong in enforcement in the digital asset space,” CFTC Commissioner Caroline Pham told attendees at Korea Blockchain Week in August. “Anybody who thinks that the CFTC is not going to be tough might have missed when we fined all the banks billions of dollars for fraud and manipulation after the financial crisis.”
Congress is keen to make the CFTC the primary regulatory body over crypto, with bills in the House and Senate agricultural committees to do just that. (The CFTC operates under the US Department of Agriculture.)
The Senate Agriculture Committee bill – pushed by Behnam’s former boss, panel Chairwoman Debbie Stabenow (D-Mich.) – would give the CFTC an unprecedented ability to charge the crypto industry fees to fund the new oversight. The CFTC, with fewer than 700 employees, is tucked into a humble building in northwest Washington, D.C. It’s always been much smaller than the SEC, which employs more than 4,500, but these new fees could allow it to build up considerably.
There are a lot of red flags out there, crypto advocates say.
However, a telling sign has emerged that reveals some of the CFTC’s inner thinking. In its latest enforcement action, the agency targeted the Ooki DAO with accusations it offered illegal trading without the proper government approvals or regulatory controls. That potentially sets a controversial precedent in holding participants in a decentralized autonomous organization accountable for their organization’s missteps.
"The CFTC is pushing its legal authority," said Jaret Seiberg, an analyst with Cowen, citing the Ooki DAO action. "It confirms our view that the agency would be a tough regulator if Congress makes it the lead on crypto."
DeWaal contends the CFTC had already been showing it’s willing to be aggressive in enforcement, such as in cases against Tether, Bitfinex and Coinbase Inc.
“If you stack up the big names in the crypto industry, there have been more big names captured by the CFTC in their lawsuits than the SEC,” DeWaal said.
“I do worry about the political jockeying for power ahead of the decision by Congress – the desire to one-up each other to show who is the tougher regulator,” said Paul McCaffery, the head of alternative capital sales at investment bank Keefe, Bruyette & Woods. “It disappoints me that the CFTC opted for the SEC rule-by-enforcement playbook. Hopefully we see a legitimate process going forward and less splashy grandstanding, which is what I think this Kim Kardashian settlement was with Gensler this week.”