Expanded CFTC authority could lead to clearer cryptocurrency regulations in the Trump Administration.
With Donald J. Trump winning the presidency, the cryptocurrency sector may see a new wave of regulation through enhanced oversight by the Commodity Futures Trading Commission (CFTC). This change aligns with the new Administration’s aim to reduce the regulatory power of the U.S. Securities and Exchange Commission (SEC). Such a transition would likely benefit the cryptocurrency industry and help mitigate the jurisdictional tensions between the SEC and CFTC.
At present, the SEC and the CFTC hold differing views on defining cryptocurrencies. The SEC categorizes digital assets as securities under the Howey Test, which determines if assets can be considered “investment contracts,” thus subjecting them to SEC regulations. Conversely, the CFTC views cryptocurrencies as commodities, similar to traditional assets like gold or oil.
Both regulatory bodies claim authority over digital assets; however, many cryptocurrencies exhibit traits of both securities and commodities. For instance, certain coins primarily designed for investment purposes resemble securities more closely, whereas others, such as Bitcoin, function as tokens within a blockchain—a database organized in linked blocks—aligning them more with commodities.
Through enforcement actions against unregistered crypto platforms, the SEC has asserted its jurisdiction over cryptocurrencies, treating most digital currencies as investment contracts. In contrast, the CFTC intervenes primarily when virtual currencies are involved in derivatives trading, focusing on fraudulent activities and market manipulation.
In May 2024, the U.S. House of Representatives approved the Financial Innovation and Technology for the 21st Century Act (FIT 21), which clarifies the jurisdictional boundaries between the SEC and CFTC by categorizing cryptocurrencies into specific categories, each assigned to one agency. This act would enhance CFTC’s control over spot markets, where assets are traded for cash, while restricting SEC’s authority to assets lacking a decentralized blockchain.
FIT 21 aims to classify cryptocurrencies into digital commodities, restricted digital assets, and allowed payment stablecoins. While offering clarity for the first two categories, it provides limited guidance for stablecoins; however, the U.S. Senate is actively pursuing legislation to regulate stablecoin issuers and protect consumers. Additionally, the Trump Administration may consider advocating for a joint statement between the SEC and CFTC to clarify their distinct roles while Congress addresses other legislative priorities.
Ultimately, a clear regulatory framework for cryptocurrencies prioritizing consumer protection and sound economic policy is needed. The Trump Administration should prioritize the enactment of FIT 21 to settle the existing jurisdictional disputes between the SEC and CFTC. Furthermore, Congress should aim to pass one of the proposed stablecoin bills to create a unified and bipartisan regulation for dollar-backed stablecoins, ensuring a competitive and secure environment as digital assets grow in significance within financial markets.
