While turf wars are nothing new in Washington, the current escalation over which federal agency has the power to regulate the trading of digital assets reveals the profound dysfunction of the modern executive state. The battle goes far beyond which agency gains greater power. The future of the Internet may be at stake.
The United States is somewhat unusual in that it has various bodies that regulate securities such as stocks and bonds and derivatives such as options, swaps and commodity futures. The Securities and Exchange Commission (SEC) regulates the former, and the Commodity Futures Trading Commission (CFTC) regulates the latter. However, jurisdictional boundaries may be blurred due to overlapping powers between agencies and overlaps with other state and federal financial regulators.
Division of labor and competition may offer some advantages, but in this case digital assets are caught in a fissure of jurisdiction due to the lack of a clear regulatory body. Her 60 million Americans trading crypto assets are doing so abroad at the mercy of foreign law or under state remittance laws designed for payday loans, not financial markets. .
I have found it very important which agency has jurisdiction. While the SEC regulates through detailed rules, the CFTC more often takes a principles-based approach. The former offers certainty and rigidity, while the latter offers greater flexibility. Stronger SEC enforcement may limit downside risks, but the CFTC model is likely to encourage investment in innovation.
These different approaches are also reflected in how government agencies have approached emerging markets for digital assets. CFTC-registered exchanges have been approved to offer Bitcoin derivatives products for several years. Indeed, the CFTC has a history of promoting and regulating financial innovation. Initially tasked with overseeing mundane hedging of agricultural commodities, the CFTC has used a broad principles-based approach to authorize a myriad of new derivatives, from interest rates to weather.
Meanwhile, SEC staff participate in numerous crypto exchange-traded fund (ETF) registrations and committees. It repeatedly rejects corporate offers to list bitcoin ETF productsIn fact, the Commission has largely opted to regulate crypto through enforcement action against entities it accuses of offering “unregistered cryptocurrency securities.” This produced some strange results. While one project may rush without consulting the SEC, raise billions of dollars, and end up paying only a small fine to the committee, other projects may seek SEC approval before launch. proactively seeking guidance from the staff, being met with silence and stares from staff and thus never finally reached. start block.
The SEC and CFTC have previously fought over jurisdiction. When stock market index futures trading flourished in the late 1970s, institutions shad johnson agreement, gave each agency a bit of action. The agreement was eventually enacted into law a few years later, as it should have been. Congress, not the agency, should determine jurisdiction.
This is exactly what Senate Agriculture Committee Chairman Debbie Stabenow (D-Michigan) and ranking members John Boozman (Republican), Senators Cory Booker (DN.J.) and John Toon sponsored. It is a recent introduction of partisan law. (RS.D.)—I will try.of Digital Goods Consumer Protection Act 2022 Defines cryptocurrencies such as Bitcoin and Ethereum as “digital goods” under the jurisdiction of the CFTC.
Logic is sound. Bitcoin, Ethereum, and most other crypto projects do not have managers and look like currencies or gold that are not under the jurisdiction of the SEC. However, if a company issues digital “tokens” and grants “token holders” the same rights and obligations that are normally transferred to shareholders, the SEC has jurisdiction. Simply calling a stock by another name does not exempt it from securities regulation.
Critics of the bill argue that the SEC is a tougher cop, but ill-equipped to foster financial innovation. Some standards and regulations are necessary for onshore investment and investor protection, but entrepreneurs and investors are worried that regulators will come one day and argue that they have been violating securities laws all along. You can’t worry about it. The CFTC is the right body to implement sensible regulation that balances investor protection needs with regulatory discretion to foster innovation.
Crypto is just getting started. Claims that blockchain technology will provide an alternative to government currency, enable peer-to-peer investments, reduce transaction costs across the financial system, and even create a better internet remain speculation at this point, however. Chances are, companies are investing billions of dollars. There will be winners, losers and hopefully breakthroughs.
A robust US trading system is essential to ensure that good ideas are funded while fraudsters are deterred and punished. With Web 3.0 and other blockchain-based technologies coming from American entrepreneurs and enriching American investors, the cryptocurrency market and investors need regulatory certainty.
Geoffrey A. Manne is Chairman and Founder of the International Center for Law & Economics (ICLE). M. Todd Henderson is Michael J. Marks Professor of Law at the University of Chicago School of Law and an ICLE Academic His Affiliate.