Over the past few years, the U.S. has intensified the struggle for influence in cryptocurrency regulation between two key agencies: the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). These bodies are trying to define their role and jurisdiction in the rapidly growing cryptocurrency market.
The U.S. government faces a difficult task: determining which agencies will regulate cryptocurrencies and to what extent. This decision could significantly affect the future of the crypto industry, setting standards and regulations that will affect the entire global market.
The U.S. regulatory system is designed so that the SEC regulates classic securities (stocks, debt instruments, investment contracts). At the same time, the CFTC has jurisdiction over derivatives (futures, swaps), including commodities, except for securities.
From the side of the CFTC, there are claims that cryptocurrency is another commodity, like wheat, gold, or financial products, and transactions with cryptocurrency derivatives must be subject to their rules. In comparison, the SEC believes that cryptocurrency-related investment contracts must comply with securities laws and are subject to their control.
Currently, three bills pending in Congress pave the way for the CFTC to become the top regulator of cryptocurrencies. Around the world, cryptocurrency exchanges often combine spot and derivatives transactions. Considering that the CFTC already controls derivatives for virtual currencies, it seems logical to transfer the regulation of spot transactions to it.
Both agencies actively intervene in the cryptocurrency sector, guided by their regulations. But the boundaries of their jurisdictions are still blurred. Understanding conflict is essential for anyone who wants to successfully navigate the rapidly evolving world of cryptocurrencies and digital assets.
Cases of SEC and CFTC regulations
On March 22, 2023, the American cryptocurrency exchange Coinbase received an official notification from the SEC. The notice was about a possible lawsuit from the regulator. Reacting, Coinbase dismissed the notice as "perfunctory" and promised to continue business as usual. Soon Coinbase sued the SEC. Their requirement? Oblige the regulator to respond to last year's petition in which they asked for clear rules regarding regulating cryptocurrencies.
In June 2023, the SEC brought 13 charges against Binance and its founder, Changpeng Zhao. One is that Zhao and his team allegedly allowed their U.S. clients to continue trading on their unregulated international exchange, even though they publicly claimed otherwise.
The CFTC is not far behind. The agency has also proven to be strong on the rules of the crypto sphere, as seen in its lawsuits against BitMEX. They paid a $100 million fine for trading bitcoin derivatives without implementing appropriate anti-money laundering (AML) and know-your-customer (KYC) measures. By building strong legal backing and presenting attractive opportunities for retail investors, the CFTC has secured a strong position for regulating cryptocurrencies. Meanwhile, Gensler, head of the SEC, is urging Congress to give his commission more power to control cryptocurrencies.
This whole debate reflects a deeper problem - adapting legislation to the rapidly evolving world of cryptocurrencies. As this industry develops, its participants need clarity and confidence in the regulatory environment. In turn, Congress and regulators seek to define approaches that will protect investors and promote innovation.
Despite the struggle for control between the CFTC and the SEC, it is essential for both structures to preserve the integrity of financial markets and protect consumer rights. Whether it is the CFTC or the SEC, the future regulator of the cryptosphere should be consistent in its policies and define clear regulations for the industry.