The past week saw major developments on the crypto regulation front. In the United States, The CFTC Chairman classified many tokens as commodities, contrasting with the SEC’s view that crypto firms deal in securities. The statement added to calls for regulatory clarity from Congress.
The bipartisan Senate support expanded for legislation closing anti-money laundering gaps exploited with cryptocurrencies. Meanwhile, a Republican lawmaker accused the SEC of deliberately obfuscating crypto regulation and questioned whether personal agendas were overriding legal obligations.
India also grabbed headlines by signaling it will take a gradual approach to crypto policymaking, unlike swift action by some global counterparts.
CFTC Chairman Classifies Many Tokens as Commodities
Yesterday’s comments from the CFTC Chairman sparked fresh debate around the complex task of appropriately classifying digital assets.
In a CNBC interview, CFTC Chair Rostin Behnam diverged from the SEC’s stance by stating that many crypto tokens constitute commodities under existing laws. In contrast, SEC Chair Gary Gensler strongly claims that crypto intermediaries deal in securities requiring SEC oversight.
“It is figuring out how existing, decades-old law, fits into this new technology that seems to be changing and ultimately needs a new way of thinking around policy and legislating,” says @CFTCbehnam on #crypto. “Under existing law, many of the tokens constitute commodities.” pic.twitter.com/F3JPjWq3wG
— Squawk Box (@SquawkCNBC) December 12, 2023
While Behnam acknowledged the need for regulatory clarity from Congress, he also highlighted the CFTC’s progress in shoring up rules around illicit finance risks. The agency has made efforts to implement stricter AML and KYC standards for the cryptocurrency industry.
Behnam’s recent remarks echoed his previous calls for swift regulatory frameworks tailored to digital assets. His pleas conveyed an urgency rooted in the rapid evolution of blockchain technology and crypto markets since the pandemic’s onset.
Despite rumors of disagreements with Gensler, Behnam emphasized a collaborative working relationship between the agencies. He cited shared goals of market integrity and consumer protection as underlying any differences in approach.
In Behnam’s view, the core challenge stems not from interagency tension but rather from the difficulty of fitting decades-old laws into blockchain. This problem requires fresh thinking from lawmakers and regulators as they balance their approach
The CFTC Chairman’s call for crypto-specific policies adds to the growing chorus of experts urging updated rules and guidance around digital assets. How regulators and legislators define and govern cryptocurrencies will profoundly impact the shape and direction of the industry.
Bipartisan Anti-Money Laundering Bill Extends Crypto Regulations
This week also saw an expansion of Senate support for legislation to close cryptocurrency’s AML gaps.
Senators Elizabeth Warren and Roger Marshall announced on Monday growing bipartisan endorsements for their bill extending AML rules to crypto entities like exchanges.
The proposal would mandate KYC and suspicious activity reporting requirements for digital asset firms similar to TradFi. Critics have pointed out that the absence of these standards is a regulatory flaw, which allows for the undetected funding of crime and terrorism.
JUST IN: 🇺🇸 US Senator Elizabeth Warren says “there’s a new threat out there, it’s crypto” and “we can’t allow that to continue.” pic.twitter.com/FYjZYhH8q2
— Watcher.Guru (@WatcherGuru) December 7, 2023
Additionally, the bill targets two of the most pressing illicit finance risks posed by cryptocurrencies — unhosted wallets and mixers. By directing guidance around handling transactions related to these tools for anonymity, the legislation seeks to curb one of the lawmakers’ primary concerns around crypto — its use for money laundering.
Backers argue extending AML guardrails to cryptocurrency will allow digital assets to gain mainstream legitimacy.
Some critics voiced concerns that imposing regulations on cryptocurrencies could undermine core tenets like anonymity and privacy that have defined the traditionally decentralized ecosystem, however. They argued these principles are central to the ethos of digital assets, and that overregulation risks constraining innovation.
“As non-custodial and decentralized software cannot plausibly perform centralized compliance functions, Warren’s bill would effectively outlaw crypto in America,” the head of Firmwide Research at Galaxy Digital Alex Thorn tweeted.
Proponents countered that the transparency of public blockchains serves as an anti-corruption tool, enabling greater traceability of illicit transactions compared to untraceable cash.
Though the scale of global money laundering likely totals trillions annually and fuels untold amounts of criminal activity, cryptocurrency accounts for just a tiny fraction. Per 2023 research from Chainalysis, crypto-based money laundering comprised only 0.24% of the whole, while cash remains king for untraceable illicit transactions.
Republican Lawmaker Accuses SEC of Obfuscating Crypto Rules
Tensions surrounding crypto oversight approaches escalated last week when a Republican congressman leveled accusations against the SEC.
At a House Subcommittee on Digital Assets, Financial Technology, and Inclusion hearing, Rep. Tom Emmer heavily criticized the agency for a lack of guidance around crypto regulation.
“If it wasn’t obvious before, it’s certainly obvious now: The SEC has a deliberate policy preference to provide LESS clarity to the marketplace instead of more clarity,” Emmer said during the hearing. “Complete disservice to our great capital markets.”
🚨 Tom Emmer @GOPMajorityWhip grilling Valerie Szczepanik on the infamous Bill Hinman speech.
— Subjective Views (@subjectiveviews) December 5, 2023
In the lawmaker’s view, this allows the SEC overly broad discretion in crypto enforcement actions.
He claimed the SEC flouts existing laws and loses in court due to muddled, opaque crypto rules shaped to the agency’s advantage.
“The SEC is not adhering to the law. That’s why it keeps losing in court,” he explained. “Does the chairman of the SEC tell you to adopt positions to further a specific goal, his own personal goal rather than allegiance to the law?”
The congressman’s heated critique represents his latest in an ongoing pushback against the SEC‘s enforcement-led approach toward digital asset oversight.
Several other crypto industry advocates allege that the SEC exerts unilateral authority over cryptocurrencies at the expense of innovation. They argue for Congressional action addressing perceived regulatory overreach.
India Opts For Gradual Crypto Policymaking Based on Evolving Standards
Last week also brought a reiteration of India’s plan to take a measured approach to crafting crypto legislation.
The Finance Minister confirmed India will develop policies carefully tailored to its emerging market status.
Unlike jurisdictions such as the EU which passed the landmark crypto law MiCA this year, India appears set on an evolutionary policymaking course. The country instead seems focused on observing international regulatory developments before committing to a defined legislative framework.
Breaking🚨: The Ministry of Finance 🇮🇳 responds in the parliament today on Crypto regulation in India.
Here’s the full document👇 & a detailed🧵 pic.twitter.com/gDdxtv8au1
— KoinX (@getkoinx) December 12, 2023
India’s stance likely reflects a confluence of factors. The nation has approached crypto oversight cautiously since rescinding a cryptocurrency ban in 2020. Meanwhile, maturing global standards, new use cases, and impending 2024 elections could all shape future policy.
Allowing international norms to take shape first may empower India to craft regulations aligned with global partners. The delay risks enabling unlawful activity to increase in the interim, however.
For now, India seems inclined toward prudence over haste. As the world’s second most populous country, its eventual policy choices will resonate widely. In the near term, Indian crypto investors face continued uncertainty about where the country’s crypto stance will land.
As leading economies advance oversight frameworks, tensions are flaring over balancing control and growth in the space. Striking this balance has proven complex given cryptocurrency’s novelty and unique risks. How the industry matures depends on countries working in concert to enable accountability without stifling technological progress. With last week’s events, the political dynamics and regulatory philosophies guiding this global balancing act came into sharper focus.