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If there ever was such a thing as a stellar line-up of regulators, the U.S. House of Representatives Agricultural Committee hearing on June 6 on digital asset regulation would likely be a record-breaking one. The current chairman of the Commodity Futures Trading Commission (CFTC), Rostin Behnam, is joined by the agency’s former chairman and former acting chairman, as well as a former commissioner. Coinbase General Counsel Paul Grewal also appeared.
In addition, the hearing was very long, with Behnam alone speaking and answering questions for more than two hours. The topic of the hearing was a bill sponsored by committee chairman Glenn Thompson and chairman of the House Financial Services Committee Patrick McHenry.
“We’re hoping we’ll have a bipartisan joint committee legislative proposal,” Thompson said of the Republican bill in his opening remarks.
Members of the Democratic committee showed some signs of abandoning that hope. Democrats noted that the 162-page bill was described as “incredibly complex” and they only saw it last week.
The bill is only a draft, Thompson stressed, but it is badly needed because:
“Current federal laws and regulations contain few rules […]leading to complex enforcement action by regulators and further confusion in the industry and market.”
The bill should not affect existing law, Behnam told the committee, and it does not change existing powers. Rather, it closes gaps, especially in the spot market for non-security digital assets. This gap leads to “Joe Schmo in an e-cigarette shop selling cryptocurrency,” as committee member Rick Crawford described in his hometown. Meanwhile, bankers are avoiding the emerging asset class as long as it remains unregulated.
Related: Binance lawsuit: 61 cryptocurrencies are now treated as securities by the SEC
The Thompson-McHenry bill would change the method of defining securities and commodities to one based on how the asset was sold—whether it was received from an issuer or bought on an exchange—and the level of decentralization as an adjustment to the “regulatory principles-based regime” already is valid. Securities are usually bought from the issuer and commodities are traded on exchanges.
The bill will also create new definitions of digital commodity brokers and dealers without changing the core components of the market structure.
According to Behnam, the regulatory gap affects 60% of the digital asset market. He was referring to the Bitcoin (BTC) and Ether (ETH) markets. Behnam did not hesitate to declare ETH a commodity, not a security, in contrast to Securities and Exchange Commission Chairman Gary Gensler, who declined to make that distinction in a House Financial Services Committee hearing in April.
Behnam was less encouraged by the bill’s pre-registration period, which would give intermediaries a limited exemption from the bill’s requirements while final rules were drafted. Behnam described it as “handcuffing” the regulators.
.@CongressmanGT: Today, the SEC filed a complaint against one of our witnesses, @coinbase. While I will not & cannot speak to any specific allegations against the company, I do want to note this action is exactly why we are holding our hearing hear today.https://t.co/NF0tyLf0Du
— House Committee on Agriculture (@HouseAgGOP) June 6, 2023
Empowering the CFTC to fill a regulatory gap in regulating digital assets would give the agency significantly more powers and would cost money. The bill does not include a funding mechanism, as numerous Democratic committee members have pointed out, and the House Appropriations Committee has proposed cutting funding to the CFTC.
Behnam said the CFTC’s current budget is $360 million, while it has requested $410 million for the next fiscal year, with the Appropriation Committee offering $345 million. If these budget cuts are made, the agency will have to lay off employees, Behnam said.
With the Digital Assets Regulation Bill, the CFTC will need an additional $120 million over three years. The extra money will pay for three rule development teams and new computer hardware and software. Rulemaking will take up to four years.