How Crypto Assets Are Regulated — and How They Are Not

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For many investors, one of the allures of cryptocurrency is that it’s not overseen by any central authority in the United States, despite rumblings in the nation’s capital that it needs to be more closely regulated.

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As it stands, crypto doesn’t fall into any neat financial category that would put it under the umbrella of a specific authority such as the Securities and Exchange Commission (SEC), Federal Reserve, Federal Deposit Insurance Corporation (FDIC) or Commodity Futures Trading Commission (CFTC). Regulation of digital assets more or less depends on how it’s used — and even how that use is interpreted.

To help clear up confusion over how crypto is regulated, CFTC commissioner Dawn Stump issued public statements last week addressing her organization’s authority over digital assets. One thing she mentioned upfront was that the CFTC doesn’t have regulatory authority over cash commodities, but instead regulates futures contracts on commodities, as well as other derivatives products such as swaps.

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“Even if a digital asset is a commodity, it is not regulated by the CFTC,” Stump said. “However, the CFTC does regulate derivatives on digital assets, just like it regulates other derivatives. That includes the regulation of trading, clearing, etc., of futures contracts and swaps on digital assets (such as the futures contracts on Bitcoin and Ether listed for trading on various CFTC-regulated exchanges).”

Among Stump’s other points:

  • “Just as the CFTC does not regulate cash commodities, it also does not regulate securities — the SEC does that. Accordingly, if a digital asset is a security, the CFTC does not regulate it.”
  • “Because the CFTC is a regulator of derivatives, it may regulate derivatives on securities, such as it does today for futures on broad-based stock indexes […] if a digital asset is a security, further analysis is required to determine where Regulatory Authority lies for a derivatives product on that digital asset.”
  • “A trading platform that offers derivatives on digital assets to U.S. persons without registering, or in violation of CFTC trading rules, is subject to the CFTC’s enforcement authority.”

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Stump also said that the CFTC “has aggressively used its broader enforcement authority to deter manipulation and fraud involving cash digital assets” even though the CFTC doesn’t specifically regulate digital assets.

If that sounds confusing to you, you’re not alone. Uncertainty over where crypto assets fall in the financial spectrum has led government leaders to push for more regulation. In July, Federal Reserve Chairman Jerome Powell addressed the Fed’s interest in regulating stablecoins — as well as the possibility of establishing a central bank digital currency — while testifying before the U.S. House Committee on Financial Services.

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Earlier this month, GOBankingRates reported on a proposed add-on to the $1 trillion infrastructure bill that would impose more federal regulation on cryptocurrencies and dramatically increase the number of crypto users who would have to report their filings to the IRS.

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Last updated: August 30, 2021

About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte MagazineStreet & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, will be published in 2021 by Atmosphere Press.

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