As the U.S. Commodities Regulator Urges Fast Crypto Action, Senators Still Scrambling

While Senate Agriculture Committee Chairwoman Debbie Stabenow (D-Mich.) said that her latest legislative proposal for overseeing the crypto markets is on the way to her panel's fellow members this week, the committee's top Republican said his meetings with the digital assets industry indicate that those businesses don't yet like what they're seeing.

"The frank and honest feedback we have received from these discussions does not lead me to believe the necessary level of support for this proposal to be successful currently exists among stakeholders, and people are working very hard to try and rectify that," said Sen. John Boozman (R-Ark.), the panel's ranking Republican, in a Wednesday hearing on the digital assets sector.

The head of the U.S. Commodity Futures Trading Commission (CFTC), Rostin Behnam, echoed sentiments in his testimony that generally match the view of cryptocurrency advocates: Congress has been failing to produce a regulatory answer to crypto, and it's hurting investors and leaving the U.S. at a competitive disadvantage.

He said that what "concerned me the most" about watching the growth of digital assets has been Congress' lack of action

"I believe the single most important thing I have done, and continue to do, is advocate to this body to fill the regulatory gap," Behnam told the senators. "Congress must act quickly in order for regulators, like the CFTC, to provide basic customer protections that are core to U.S. financial markets."

The senators atop the Agriculture Committee, which oversees the CFTC, have worked for years on their own crypto legislation that would – more narrowly than other efforts – focus on granting authorities to the regulator to police the spot trading in digital commodities. That category, which includes bitcoin (BTC) and which Behnam and others argue also includes Ethereum's ether (ETH), represents the majority of crypto trading activity.

However, the details of a current effort led by Stabenow haven't officially emerged, and she indicated at the hearing that she hopes to share specific legislative language with fellow panel members by the end of the week.

"We cannot afford to wait any longer to regulate these assets," she said in the hearing. "The time to act is now."

Boozman called the hearing "a good start," suggesting that his stated intent to keep working with Stabenow on new legislation isn't nearing a finish line.

The U.S. House of Representatives has moved well beyond the Senate in crypto legislative progress, having passed a wide-reaching bill on market structure with a large bipartisan majority. But the industry has encountered more difficulty in the Senate, where prominent members such as Sens. Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio) have been critical of the dangers crypto poses to consumers. Brown's Senate Banking Committee has so far failed to move on legislation, despite years of discussion on the topic.

"Some in this town are less interested in protecting consumers and investors than others," Brown said at Wednesday's hearing.

Little time remains in this session of Congress to address complicated regulatory legislation, and the November elections will take even more of the lawmakers' attention as that date approaches.

Behnam argued that failing to institute federal rules on crypto isn't going to keep investors away.

"I do not believe inaction will quash public interest for digital assets; it will only result in greater risk to our financial markets and investors," he said.

The CFTC chairman contended that any legislation should define how his agency and the Securities and Exchange Commission (SEC) will figure out what's a digital commodity and what's a security. But Boozman said during the hearing that this committee shouldn't push beyond its CFTC jurisdiction and into the workings of other regulators "not under our authority," such as the SEC, Treasury Department and the Federal Reserve.

The CFTC chief also said that his agency's current powers, which are largely limited to enforcement, are too reactive to be a useful preventative of bad behavior in the industry.

"The point of any comprehensive legislation on this is to prevent more of the fraud before it occurs and reduce regulation by enforcement," said Christopher LaVigne, a partner at the law firm Withers, in an email. "It was interesting to hear Chairman Behnam state his belief that enforcement of existing rules does not have the same deterrent effect that a comprehensive regulatory regime would have. It is hard to imagine [SEC] Chairman [Gary] Gensler making such an admission."

Read More: U.S. House Approves Crypto FIT21 Bill With Wave of Democratic Support

UPDATE (July 10, 2024, 16:32 UTC): Adds comment from a lawyer at Withers.