Commodity Futures Trading Commissioner Dawn Stump said cryptocurrency traders and insiders have a broad misunderstanding of the agency and its actual role.
Commodity Futures Trading Commissioner Dawn Stump is sick and tired of hearing that cryptocurrencies are commodities that should therefore be regulated by her agency.
Decrying what she says is a “grossly inaccurate oversimplification offered which suggests these are either securities regulated by the Securities and Exchange Commission, or commodities regulated by the Commodity Futures Trading Commission,” Stump laid out a 10-point document clarifying her agency’s authority and role.
But, she said, the problem starts with this: “The CFTC does not regulate commodities (regardless of whether or not they are securities); rather, it regulates derivatives—and this is true for digital assets just as for any other asset class.”
Understanding that is vital, particularly as congress begins looking seriously at updating financial regulations to account for the new class of digital assets.
For one thing the CFTC has no authority over the cash market for buying and selling commodities such as cattle, or the sale and transmission of natural gas — or cryptocurrencies, assuming they are actually commodities.
“Rather, the CFTC regulates futures contracts on commodities, and other derivatives products such as swaps,” she wrote.
“Therefore,” she added, “even if a digital asset is a commodity, it is not regulated by the CFTC.”
Regulation And Enforcement
However, the CFTC would still regulate things like the trading and clearing of derivatives products on digital assets — “such as the futures contracts on Bitcoin and Ether listed
for trading on various CFTC-regulated exchanges,” Stump noted.
If a cryptocurrency is a security, then it is regulated by the Securities and Exchange Commission, or SEC, she said.
But, it does regulate derivatives on those securities, whether they are stocks or cryptocurrencies.
More importantly, the CFTC also has enforcement authority over derivatives and the people and platforms that trade them.
That specifically includes cryptocurrency exchanges that offer derivatives, such as BitMEX, which it recently penalized to the tune of $100 million.
Stump emphasized that the CFTC’s enforcement authority is especially broad —and the agency is especially aggressive — when it comes to cases of fraud and market manipulation.
The reason is simple, she said: “Because well-functioning futures contracts (and other derivatives products) rely upon a sound underlying cash market and may reference cash market indexes in their pricing.”
Summing up, Stump’s tenth point said:
“To determine the CFTC's regulatory authority with respect to a digital asset, ask not whether the digital asset is a commodity or a security — ask whether a futures contract or other derivatives product is involved.”
