By Chris Matthews
Executives from some of the nation’s largest and most powerful cryptocurrency companies plan to petition Congress to create a new regulatory framework for digital assets that could help them avoid a costly showdown with the Securities and Exchange Commission, according to prepared testimony published Tuesday.
Executives from Coinbase Global Inc. /zigman2/quotes/225893452/composite COIN -4.72% and FTX Group — the world’s second- and third-largest crypto exchanges by daily market volume, according to CoinMarketCap — plan to suggest that Congress pass laws that would give primary regulatory authority over the crypto industry to a single federal agency, as a means to end what they see as a costly war of jurisdiction between entities like the SEC and Commodity Futures Trading Commission.
“A successful policy framework would allow crypto platforms to offer both spot and derivatives trading on crypto assets under one unified system, with one rule book and one technology platform to manage risks related to all trading activity in customer accounts,” said Sam Bankman-Fried, CEO of FTX, in remarks prepared for a Wednesday hearing before the House Financial Services Hearing on crypto markets.
Under current rules, the SEC oversees spot markets for securities, while the CFTC oversees derivatives markets based on commodities. The two agencies have joint jurisdiction over derivatives markets that are based on securities and other products, like exchange-traded funds that are anchored to the price of a derivative, as in the case of several recently launched bitcoin futures ETFs /zigman2/quotes/230440344/composite BITO -4.04% .
Neither regulator engages in regular oversight of spot markets for commodities, including bitcoin /zigman2/quotes/31322028/realtime BTCUSD -2.25% and ether /zigman2/quotes/108573964/realtime ETHUSD -3.98% . Despite intense industry lobbying, the SEC has declined to issue explicit guidance as to which cryptocurrencies it considers to be securities, which must be registered with the agency before an issuer can offer them for sale to the public.
Exchanges that offer securities to the public must also register with the SEC as securities exchanges, which no major crypto exchange has yet done.
In October, Coinbase unveiled a regulatory proposal that urged Congress to create or designate a “digitally native and dynamic regulator” as the single overseer of markets for digital assets.
In his prepared testimony, FTX’s Bankman-Fried will point to his company’s proposal for a system “of joint supervision by the CFTC and SEC, with one of the two market regulators serving as the primary regulator, and the other as the secondary regulator.”
Such a system would likely prove a to be a boon for the CFTC, which the crypto industry has generally seen as a more friendly regulator than the SEC. FTX is already regulated by the CFTC in its capacity as a crypto futures market and clearinghouse, and the CFTC has moved faster to approve crypto financial products, like bitcoin futures, which debuted in 2017.
“FTX Is quite familiar with the CFTC regime…and believes the CFTC’s principles-based approach…makes a lot of sense,” Bankman-Frieds plans to say.
Coinbase Global CFO Alesia Hass will make the case that current “securities exchange regulation does not work for digital asset trading platforms” in her prepared testimony .
“Our federal securities laws, which originally date from the 1930s, include a list of more than 20 financial instruments that are considered securities,” her testimony reads. “None of these categories are a good fit for most digital assets, which have characteristics and functions beyond those contemplated for regulation by securities laws.”
The SEC believes that it already has wide authority to regulate digital-asset platforms, and Chairman Gary Gensler has increasingly singled that the agency could soon bring enforcement actions against platforms that fail to register as securities exchanges.
In a recent discussion with his predecessor Jay Clayton, Gensler urged crypto exchanges to register with the agency so it could ensure investor protection on these forums.
“Platforms, whether they’re trading platforms, lending platforms, whether they call themselves centralized or they call themselves decentralized….are an important place for public policy and investor protection,” Gensler said at the Digital Asset Compliance & Market Integrity Summit last week.
He added that when the SEC and trading platforms cannot come to an understanding, “we’re going to use the enforcement tool,” suing entities that fail to register with the agency. “But I think a better approach for these platforms…is to work to get registered within the law.”
The hearing will also feature discussion of issues including stablecoin regulation and the regulation of banks that custody crypto assets on behalf of customers. In addition to Coinbase and FTX, It will feature testimony by Jeremy Allaire, Chairman and CEO of Circle, issuer of the stablecoin USD Coin /zigman2/quotes/226472410/realtime USDCUSD 0.00% , Brian Brooks, former acting comptroller of the currency and CEO of Bitfury, Chad Cascarilla, CEO of Paxos, and Danelle Dixon, CEO of Steller Development Foundation /zigman2/quotes/226392992/realtime XLMUSD -2.38% .