The Commodity Futures Trading Commission (CFTC) is in a precarious position as it faces potential difficulties regulating cryptocurrencies due to vacant seats within the commission. This issue has been brought into focus recently as Representatives in Washington are pushing for the CFTC to take on the role of regulating the crypto industry.
Last week, US Congressman French Hill introduced the first draft of the Clarity Act. This proposed legislation aims to establish a new asset class known as the “digital commodity”, which would permit approved assets to conduct fairly unrestricted trading on the secondary market and would grant the CFTC the majority of the regulatory authority over cryptocurrencies.
The CFTC, like the Securities and Exchange Commission and numerous other federal commissions, is comprised of five commissioners. Each commissioner must be confirmed by the Senate. Currently, one chair remains vacant, with more commissioners set to depart soon. This situation could potentially impede the CFTC’s capacity to effectively regulate the crypto industry, should the Clarity Act be passed.
The CFTC’s ability to regulate crypto has been limited due to the delay in the nomination process. In the past, when a presidential administration changes, the CFTC chair resigns to allow the president to appoint a new chair. However, the nomination of Brian Quintenz, a former commissioner and an a16z crypto head of policy, has been stalled for several months now.
Despite this, the CFTC has not ceased to function. Some of its functions, such as issuing or amending regulations, policy statements, exemptions, or no-action criteria, are carried out by the office of the chair. Nonetheless, these functions, particularly those that are controversial, will be challenging to execute with a split commission.
The crypto industry, however, doesn’t seem to be adversely affected by this situation so far. In fact, the lack of enforcement or a regulatory agenda from the CFTC has been seen as a remedy to the “regulation by enforcement” approach that was criticized during former President Joe Biden’s administration.
Yet, the current deadlock in the commission might soon become a critical issue, as other CFTC commissioners are set to step down. With no clear plan to address this issue in sight, it raises the question of whether betting the future of the cryptocurrency industry on the CFTC is a sensible move.
