U.S. regulators don't have any more authority now to head off another major crypto collapse than they did when FTX imploded and took much of the industry with it, said Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam.
"Nothing has changed, and we could be in a position where another FTX-type event happens," Behnam said Wednesday at the Financial Markets Quality Conference 2023 at Georgetown University. However, he noted that the crypto investing enthusiasm has calmed since the months before FTX, and "the market environment is much, much different today than it was a year ago."
He noted – as he routinely does – that the CFTC has limited powers over the markets in which assets such as bitcoin trade directly. In that spot market, his agency only has the authority to intervene when market-manipulation and fraudulent activity is pointed out to the regulators. CFTC officials don't have the reach they do in the crypto derivatives sector, where they can assess companies' registrations and supervise their behaviors directly. And the Securities and Exchange Commission (SEC) only polices the securities markets.
While SEC Chair Gary Gensler has repeatedly said he believes the bulk of crypto tokens are securities, there are some cryptocurrencies, like bitcoin, that don't fall under that regulator's jurisdiction. Behnam also puts ether on that list, noting Wednesday that the non-security crypto tokens make up "easily 50% – if not more – of the marketplace."
Legislation
Since FTX, U.S. lawmakers have pursued legislation to give the CFTC jurisdiction over direct, cash markets, but those crypto market-structure bills still await action. One of them was approved by committees in the House of Representatives and would need a vote from the overall chamber, but the Republican-led effort so far lacks support in the Democrat-controlled Senate.
"There's obviously a lot going on in Congress these days," Behnam said. "These bills have been caught, I think a little bit in a holding pattern."
Crypto lobbyists had hoped that crypto bills – also including one that would set up U.S. guardrails for stablecoin issuers – would get a House floor vote before the end of the year. But Congress has largely been occupied with keeping the federal government open as lawmakers hash out spending bills, and the House was recently sidetracked after Republicans ousted former Speaker of the House Kevin McCarthy (R-Calif.) and replaced him with Rep. Mike Johnson (R-La.).
Prediction markets
The CFTC chief also addressed his agency's court fight with prediction market Kalshi over political-outcomes betting. His agency has opposed Kalshi's election contracts and was taken to court over that decision, depending in part on deciding whether there's societal value in hedging political risk by being able to engage in contracts that pay if – for instance – a certain person or party is elected.
"If there are allegations of fraud or manipulation in an election – whether it's a local district in Iowa, or any other state – you can imagine we then become an election cop," said Behnam. "If there's a listed futures or unlisted derivative on an election and there's an allegation of fraud in that election, that fraud would presumably have affected the price revaluation of the listed future."
He said he doesn't want the CFTC to have to assume that role in U.S. elections.
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