Fresh from his confirmation hearing, Commodity Futures Trading Commission Chairman Rostin Behnam made another, more aggressive pitch for authority over the cryptocurrency market in front of the Senate Agricultural Committee Wednesday (Feb. 9).
While he admitted that the agency does not have the depth of talent or industry expertise to handle the job at present, Behnam asked for an additional $100 million to build a regulatory machine suitable to the job, telling Sen. Amy Klobuchar (D-Minn.) that he is ready to build one.
Behnam’s pitch for an “an increasingly central role in overseeing the cash digital asset commodity market,” comes in the wake of Securities and Exchange Commission (SEC) Chairman Gary Gensler’s argument that nearly all cryptocurrencies are securities.
See also: Gensler: SEC Is Coming for Crypto Exchanges
Notably, Behnam is looking for a piece of the regulatory pie, telling Sen. John Hoeven (R-N.D.) during the hearing that there is a “noticeable gap” in the law about “what constitutes a security and what constitutes a commodity.”
He said a clear, congressionally mandated dividing line is needed, which implicitly assumes that some, and perhaps many, cryptocurrencies are commodities, not securities.
So far, the SEC has only agreed that bitcoin (BTC) is not a security, and the CFTC has declared that the same thing applies to Ethereum’s ether (ETC).
Commodity or Security?
That argument is playing out in the SEC’s ongoing lawsuit against international payments firm Ripple, which argues that its ongoing sales of the XRP token used by its RippleNet for very fast, very cheap cross-border transactions amounts to an ongoing unregistered securities sale. The company and many others in the cryptocurrency industry have called the suit an end-run that seeks to create regulation by litigation, pushing for a court ruling that will effectively define most cryptocurrencies as securities.
See also: Ripple Lawyer Confident SEC Case Will Wrap in April
Many in the cryptocurrency industry would like to see many tokens — notably so-called “utility tokens” that perform a function in a crypto-currency-powered blockchain, generally giving the user the right to use some product or service.
One of the first of the very few cryptocurrencies that the SEC has recognized as non-securities via No-Action Letters was a token that could be used to purchase flight hours from TurnKey Jet, a private jet service. Its usefulness was in a market so small that the SEC deemed there was no investment demand.
Most cryptocurrencies other than strictly payments-focused tokens like Litecoin and Bitcoin Cash are utility tokens but are bought as investments by users who believe that as a blockchain gets more projects and therefore more users, the value of the tokens will increase along with demand — as virtually all crypto projects have followed Bitcoin’s lead in having an absolute cap on the number of tokens that can be issued.
Congressional Support
One clear thing is that Behnam has the support of the House and Senate committees responsible for overseeing the CFTC.
Not that it was a surprise. In a Jan. 12 letter to Behnam, the chairs and ranking members of the Senate Committee on Agriculture, Nutrition, and Forestry and House Committee on Agriculture said that the “CFTC has a critical role to play to ensure the integrity of digital asset markets,” noting that they” have the potential to modernize the financial system.”
More to the point, the letter said that the “CFTC has long considered certain digital assets to be commodities and courts have agreed. In fact, the two largest digital assets by market capitalization are commodities: Bitcoin and Ether.”
In addition to crypto derivatives markets — which are clearly under the CFTC’s control — the four Congress members noted that “digital assets are also traded on spot markets” and that the law “authorizes the CFTC to bring enforcement actions against entities committing fraud or manipulation in commodity spot markets or offering certain commodities without Commission registration — including markets and products for certain digital assets.”
This is a pretty clear shot across the SEC’s bow.
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