The explosive growth of cryptocurrencies has sparked a debate in Washington, DC about how to regulate them. Or, more precisely, who should regulate them.
Securities and Exchange Commission Chairman Gary Gensler has argued that this should be his agency because, as others have also argued, cryptocurrencies are very similar to stocks.
But U.S. Senator Cynthia Lummis, a Republican from Wyoming, and U.S. Senator Kirsten Gillibrand, a Democrat from New York, believe the blame should lie with the much smaller Commodity Futures Trading Commission. They introduced a bill that would give the CFTC responsibility for regulating crypto. It is also the preference of the industry, despite its recent problems.
But which agency is best placed for this task?
The Securities and Exchange Commission oversees securities, of course — “generally things like stocks and bonds,” said Adam Levitin of Georgetown Law. “These are things where there is a kind of expectation of future benefits from investing money in a joint venture.”
On the other hand, the primary job of the CFTC is to regulate the commodity futures markets, Levitin said, “ensuring that transactions are carried out fairly, without fraud or manipulation.”
Cryptocurrency pioneers were inspired by libertarian principles. But crypto is now an industry, and “at least part of it wants regulation,” Levitin said. “They want regulation because it has a legitimizing factor, but they don’t want authoritarian regulation. They want the benefits of regulation without the costs.
The SEC has more than 4,000 employees; the CFTC has only a few hundred. A former chairman, Timothy Massad, said if the agency were to be responsible for crypto, it would need more resources.
“It would be a very, very big concern if it’s not adequately funded. And frankly, the story does not leave an optimist.
In the aftermath of the 2008 financial crash, the CFTC was tasked with overseeing part of the mortgage-backed securities market – while its budget was little changed.
“It was a real problem for us,” Massad said. “It really slowed us down and made it difficult to do everything we needed to do.”
Meanwhile, some consumer advocates say Congress could do better by dropping this one for now.
“These agencies already have the authority they need to regulate this industry,” said Mark Hays, senior policy analyst at Americans for Financial Reform. “Most cryptocurrency activity walks, talks, and acts as security.”
And that’s why he thinks the SEC should take the lead.
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