Will the CFTC govern the crypto spot market? How to interpret the 2022 Digital Goods Consumer Protection Act

On August 3, Debbie Stabenow, chairman of the U.S. Senate Agriculture Committee, senior congressman John Boozman, and senators Cory Booker and John Thune introduced the 2022 Digital Goods Consumer Protection Act. Aims to regulate cryptocurrency exchanges as commodity brokers, dealers, custodians and trading facilities overseen by the Commodity Futures Trading Commission (CFTC).

The bill would create a definition of “digital goods” that would include cryptocurrencies like bitcoin and ethereum, but not anything that could be a security, enabling the CFTC to oversee digital goods transactions and enforce registration of digital goods platforms , according to the bill item-by-item breakdown. Much of the bill is devoted to detailing how these digital commodity brokers will be treated similarly to their traditional financial counterparts.

Jake Chervinsky, policy director of the Blockchain Association, a non-profit organization in the United States, analyzed that this is the third bill this year, making the CFTC the main regulator of the crypto spot market. Overall, this is a good bill and confirms the CFTC’s growing consensus on cryptocurrency regulation.

The core of the bill is to require “digital commodity platforms” such as exchanges and brokers to register with the CFTC and comply with certain rules designed to protect consumers, disclose risks and prevent manipulation. Sounds reasonable! Most people agree with this.

The bill seeks to improve upon similar proposals by the DCEA (House Ag) and RFIA (Lummis-Gillibrand) for CFTC spot jurisdiction. Secondary market regulation is a top priority for the District of Columbia, so don’t be surprised if one of these bills (or a consolidated version) becomes law next year.

The devil is in the details, Jake Chervinsky noted, and the bill does raise some questions that need to be addressed, such as whether its definition of a “digital goods platform” is too broad.

Peter Van Valkenburgh, research director at CoinCenter, said that this system will achieve many goals: (1) simplify the regulation of national funds transfer for registered businesses, (2) ensure uniform consumer protection for customers of CFTC-regulated exchanges, (3) ) to ease pressure on the SEC to take action against exchanges that trade non-securities.

Peter Van Valkenburgh said that digital commodities such as bitcoin are not securities, but the exchanges they trade on face similar investor protection challenges as stock exchanges: large-scale retail participation and highly volatile markets. The CFTC only regulates the commodity derivatives market, so it does not instruct the SEC to regulate non-securities markets, this practice only gives existing commodity regulators the power to regulate the spot market for digital commodities.

Peter Van Valkenburgh also pointed out that this is also the problem. The Senate bill creates a mandatory registration requirement, not the optional registration for the House bill. This means we need to ensure that the definition that WHO must register is appropriately narrowed to only those who pose a risk to consumers. The Senate bill also expands the list of registered entities from “exchanges” to “brokers, dealers, custodians and trading platforms.” These definitions exclude miners/stakers, but we need to ensure that software developers, node operators and individual traders are also excluded.

Mandatory registration does not apply to those who merely write or distribute software, forward or verify transactions on an unlicensed network, or use the network for personal purposes. Mandatory registration of these activities would not only undermine the innovation of these technologies with unnecessarily burdensome requirements, but would also violate our constitutional rights to speech and privacy.

In fact, after the introduction of the 2022 Digital Goods Consumer Protection Act, U.S. lawmakers proposed a new proposal to clarify the definition of “broker” in the 2021 Infrastructure Act . On August 4, with the support of U.S. Senators Pat Toomey, Mark Warner, Cynthia Lummis, Kyrsten Sinema and Rob Portman, several bipartisan lawmakers introduced new bills to clarify the “infrastructure law of 2021”. Broker” definition, the bill would exclude miners, wallet providers, network validators and other organizations that may not have the required tax filing information. 

Christine Smith , executive director of the Blockchain Association and Christine Smith , said: “Cryptocurrencies are forever. This year has tested us – macro conditions, project failures, but the industry is building and will emerge stronger than ever. As I look to 2023, I am optimistic that we will eventually see much-needed legislation in the crypto market. The reason:

First, policymakers, investors and industry agree on the need for a bill. Most federal and state agencies have done their best to use existing authorities to regulate cryptocurrencies. But there are some gaps—especially stablecoins and spot markets—that require new laws.

Second, the most recent bill is bipartisan. There are few bipartisan issues. We will get a bill with balanced participation.

Third, lawmakers agree that the CFTC is the preferred regulator for the crypto spot market.

Fourth, the education gap for policymakers is narrowing. The Biden administration’s executive order on digital assets raises thoughtful policy questions that federal agencies will respond to in a report released this fall. This will help educate those who hold a pen on Capitol Hill.

Fifth, the crypto industry is ready to be a constructive partner. Over the past year, the industry has made real investments in digital currencies. The number of policy professionals considering these issues has skyrocketed. We are ready.

Christine Smith emphasized that there is no guarantee that the heart will be released. “The odds of the bill becoming law by the end of 2023 are about 40% and by the end of 2024 it’s 60%. It sounds like a coin toss, but it’s high: 99% of the bills fail the introduction stage. This is the most good chance.”

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/will-the-cftc-govern-the-crypto-spot-market-how-to-interpret-the-2022-digital-goods-consumer-protection-act/
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