CFTC Chair Defends 'Regulation by Enforcement' Against Crypto
CFTC Chair Michael Selig has defended the commission's authority over U.S. crypto and derivatives markets in a recent brief. Selig also publicly declared a stance of "regulation by enforcement" against the crypto industry. Concurrently, he is pushing for the CLARITY Act, which aims to provide a clearer regulatory framework and end crackdowns by the SEC.
- The "regulation by enforcement" approach has been a subject of contention, with critics arguing it creates uncertainty for businesses, while proponents, like former SEC Chair Gary Gensler, have viewed it as a necessary tool to protect investors. - The CLARITY Act, officially known as the Digital Asset Market Clarity Act (H.R. 3633), passed the House of Representatives in July 2025 with bipartisan support and now awaits action in the Senate. This legislation aims to create a clearer regulatory framework by defining which digital assets are securities under the SEC's jurisdiction and which are commodities under the CFTC's authority. - A key provision of the CLARITY Act is the "mature blockchain test," which would classify a token as a commodity if no single entity controls 20% or more of its supply or governance, providing a potential pathway for assets to transition from a security to a commodity classification. - The push for clearer legislation comes after a period of public "turf wars" between the SEC and CFTC over who should regulate the digital asset space. However, under new leadership, the agencies have launched a joint "Project Crypto" to harmonize their regulatory approaches and reduce fragmentation while legislation is pending. - Rostin Behnam, the former CFTC Chair who served until early 2025, was a vocal advocate for granting the CFTC greater authority over the crypto spot markets. He argued that a significant portion of the crypto market, including major assets like Bitcoin and Ether, function as commodities. - Before his tenure at the CFTC, which began with an appointment by President Trump in 2017, Behnam served as senior counsel on the Senate Committee on Agriculture, Nutrition, and Forestry. Following his departure from the CFTC, he joined Georgetown University's Psaros Center for Financial Markets and Policy and was later appointed as the Global Head of Public Policy & Corporate Affairs at Bloomberg. - Other significant legislative efforts include the Lummis-Gillibrand Responsible Financial Innovation Act, a bipartisan bill that also seeks to provide a comprehensive regulatory framework for digital assets, addressing topics from the legal distinction between securities and commodities to the tax treatment of cryptocurrencies.
