Republican and Democratic lawmakers last week (April 28) introduced the Digital Commodity Exchange Act of 2022 in the House, which essentially authorizes the Commodity Futures Trading Commission (CFTC) to register and regulate trading venues offering spot or cash digital commodity markets as digital commodity exchanges (DCEs).
Under the bill, the CFTC would extend its oversight powers to cryptocurrency activities via DCE. The bill establishes new requirements for DCE. For instance, a registered DCE must monitor trading activity, prohibit abusive trading practices, establish minimum capital requirements, report certain trading information publicly, avoid conflicts of interest and establish governance standards and adopt cybersecurity measures.
This bill, though, doesn’t go as far as providing the CFTC with authority to supervise any type of digital asset, as the Securities and Exchange Commission (SEC) still has jurisdiction over crypto assets deemed securities or over digital assets that represent some form of ownership or investment in a business.
According to a press release, this bill “simplifies how new digital commodities are brought to market by creating clear jurisdictional lines between the CFTC and the SEC.”
The bill defines “digital commodity” as “any form of fungible intangible personal property that can be exclusively possessed and transferred person to person without necessary reliance on an intermediary.” It excludes assets that conveys equity or debt interests in a company or an entitlement to any interests or dividend payment.
While this definition provides boundaries of what goods and services are covered by the bill, and therefore subject to the CFTC’s supervision, it still leaves unanswered the key question of what crypto assets are securities and which ones are commodities.
The SEC doesn’t consider bitcoin and ethereum as securities, and they fall under the CFTC’s remit. But for smaller cryptocurrencies the situation is far less clear and based on the interpretation of the “Howey test,” which some experts argue may not be sufficient in the long term. The SEC is involved in litigation with Ripple that could shed light on how to assess if a cryptocurrency is considered a security.
Read more: SEC Advisor: Regulator Should Listen to the Crypto Community and Open Debate
“As digital assets continue to grow in use and importance throughout the world, it is critical Congress take legislative action to promote sensible regulation and define how these markets should be regulated,” Rep. Glenn “GT” Thompson, ranking member on the House Agriculture Committee, said in the news release.
The CFTC may not have obtained additional powers yet to oversight crypto assets, but its collaborative approach with the crypto industry and lawmakers has made it the favorite regulator for many.
See also: CFTC Lures Crypto Community with Rule Changes, Consultations
Just last week, in another effort to lure the crypto community, the CFTC announced a roundtable for May 25 to discuss the role of futures commission merchants (FCM) in crypto derivates trading. This roundtable comes in the middle of a public consultation launched by the CFTC in response to a request by crypto exchange FTX to change the rules to allow the company to trade without the need for an FCM.
It is too early to say if the Digital Commodity Exchange Act of 2022 would pass or if it would do it in these terms, but this is another small victory for the CFTC to gain crypto oversight. CFTC Chairman Rostin Behnam made clear in a hearing before the Senate Agricultural Commission on Feb. 9 that the agency was ready to step in if Congress would consider it appropriate.
Read more: At Senate Hearing, CFTC Chair Behnam Steps Up Battle With SEC for Crypto Oversight
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More