The CFTC chair acknowledged that cash market regulation targeting digital assets shows no signs of becoming more critical following the approval of 11 spot Bitcoin ETFs by the US Securities and Exchange Commission (SEC).
CFTC Chair Warns Against Misunderstanding Bitcoin ETFs Approval
Behnam observes the existence of risk in the recent approval of spot Bitcoin ETFs, resulting in misinterpretation to imply firm regulations for Bitcoin and general cryptocurrencies.
Behnam reiterated in his keynote speech on Friday, January 26, during the winter meeting for the ABA Business Law Section Derivatives & Futures Law Committee the potential for misunderstanding the legal ruling following the historic approval of 11 spot Bitcoin ETF applications by SEC on January 10. He warned that institutional and retail investors could misinterpret the approval as indirect regulation for the cryptocurrencies.
Behnam illustrated that though the approval facilitates the investors’ establishing exposure to Bitcoin without holding assets, regulatory oversight is missing for the crypto cash market, particularly the crypto exchange.
Despite the existence of supervision of SEC-regulated stock exchanges, the Bitcoin ETFs are entangled in a thin layer of regulations. The CFTC chair warns that nothing firmly exists to resolve the inconsistent and overly opaque practices executed in the crypto-cash markets.
Behnam adds that the absence of firm regulations erodes the Bitcoin ETFs’ transparency, considering that the asset management firms issuing them acquire the underlying crypto assets from the cash market.
The CFTC chair raises concerns regarding the opaque and inconsistent practices during trade settlement, data reporting, and client protections. Further, the regulatory gap leaves cybersecurity, market integrity, and transparency without firm guidelines.
CFTC Chair Urges Comprehensive Regulation for Crypto
Behnam informed the audience comprising committee vice-chairs and conference chairs that the exchange-traded product (ETPs) took a speculative yet volatile crypto asset and wrapped it using the thin layer of indirect regulation before packaging it as a shiny new product.
Behnam acknowledged that enforcing crypto regulations remains a prominent agenda item in the US today, prompted by the demand for clarity by the crypto industry stakeholders. The CFTC chair profiled CFTC as well positioned to resolve the specific gap though with support from the US Congress.
The CFTC chair reflected on the crypto market events witnessed in the last year, illustrating that the industry suffered to its core. He noted that the bankruptcies, collapses, and failures are validations that regulatory action is inevitable. He added that the ecosystem is proving its vast presence and requires comprehensive legislation given its permanency.
Behnam reiterated that the cryptoverse is neither a closed system nor vanishing. Instead, enacting comprehensive regulation is mandatory to safeguard customers and avert failures that one cannot certainly predict or contain within the domestic and global financial markets.
Behnam urged the vice chairs and conference chairs to support the course in resolving the regulatory gap. He assured that he would continue engaging and offering technical assistance in drafting the legislation, particularly in the wake of the new Congress.
Optimism of Crypto Regulation in the US
The CFTC will sustain its 2023 push for comprehensive regulation by engaging with the existing and new stakeholders. The chair emphasized that the CFTC is banking on the existing processes and core principles in its careful yet deliberative push for ending the regulatory gap.
Behnam’s reflection on the regulatory gap in crypto echoes the pronouncement by fellow Commissioner Caroline Pham, who, in September 2023, proposed a limited pilot initiative to resolve the digital asset legislation.
Pharm warned that continued delay in enacting a crypto-specific regulatory framework would plunge the US into a play catch-up situation with the crypto-friendly jurisdictions. The commissioner suggested that the pilot program will replicate the regulatory sandboxes deployed at the state levels.
The CFTC’s chair’s devotion to addressing the regulatory gap coincides with the industry executives’ anticipation that regulatory clarity is achievable following the November presidential election.
The optimism of regulatory clarity is evident in the January 2 survey concluded by the Crypto Council for Innovation (CCI). The respondents indicated that the candidate’s stance on crypto is extremely critical to the vote.
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