Caroline Pham from the Commodity Futures Trading Commission (CFTC) has been critical of the actions of her own regulatory agency, noting that the CFTC could be interfering on its partner agency in the recent charges it made against digital currency exchange KuCoin this past week.
The CFTC as well as the US Department of Justice have charged crypto exchange KuCoin on March 26, 2024 for allegedly operating a crypto-assets derivatives platform without proper authorization.
CFTC Commissioner Pham mentioned in an official statement issued on Friday (March 29) that the regulatory authority’s complaint seems to assert that fund shares “held by investors—namely, securities—can themselves constitute leveraged trading,” as per applicable commodities laws.
But this particular interpretation “fails to distinguish between an investment in a fund, which would typically be a security under the jurisdiction of the SEC, and the trading activities of a fund, alleged here to be under the CFTC’s jurisdiction,” Pham has argued.
She added that the CFTC’s approach may “infringe upon the SEC’s authority and undermine decades of robust investor protection laws by conflating a financial instrument with a financial activity, disrupting the foundations of securities markets.”
She also noted that “owning shares is not the same thing as trading derivatives,”
During the last year, there have been queries/questions regarding exactly where and/or in what scenarios the CFTC and SEC have jurisdiction/authority over the nascent crypto and blockchain sector.
Generally speaking, the SEC and CFTC appear to have different views on if Ethereum (ETH) qualifies as a security or a commodity.
SEC Chairman Gary Gensler has tried to avoid the question, however, he has stated that most cryptocurrencies may qualify as securities and should be regulated as such.
Meanwhile, the CFTC has stated as part of its charges against KuCoin this past week (and on other occasions), that ETH should be classified as a commodity.
In statements shared with policymakers as part of a congressional hearing recently, CFTC Chairman Rostin Behnam said that if the SEC would determine that Ether is actually a security, then it could lead to the CFTC’s registrants that list ETH as a futures contract into a case of non-compliance with SEC guidelines, referring the issue as “critical.”
Given these developments, it’s evident that there is not enough regulatory clarity in the US. Crypto-assets and their underlying blockchain technology are clearly part of a major paradigm shift when it comes to providing modern financial services. The democratization of finance and financial inclusion are part of the value proposition that cryptocurrencies and distributed ledger technology (DLT) aim to bring to the 21st consumer and business organizations.
Although there are a large number of scams and fraudulent activities that plague the crypto space, there are many positive developments such as Bitcoin (BTC) and Ethereum (ETH) development, compliant digital asset staking services, stablecoins, among other meaningful use-cases. The industry may benefit from the implementation of new rules and guidelines specifically for crypto-assets. It would also help if regulators and the industry work cooperatively instead of focusing on courts and lawsuits to determine the outcome of key decisions that could impact the ecosystem in the long-term.
