Regulation is on the way, and crypto will be all the better for it

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The ongoing debate over the need for a comprehensive U.S. regulatory framework to identify opportunities and risks in the rapidly growing Bitcoin sector has piqued the public’s interest.

The Commodity Futures Trading Commission (CFTC) chairman, Rostin Behnam, recently stated that proper regulation of the cryptocurrency space could have significant positive effects on market growth, particularly for bitcoin.

“Growth may occur if we have a well-regulated space,” Behnam said at New York University School of Law.

Behnam also stated, “Bitcoin’s price may double if there is a CFTC-regulated market,” which made headlines around the world. His remarks are unsurprising given that he has previously emphasized the importance of regulatory clarity in the Bitcoin market.

The SEC and CFTC must collaborate

Representatives from the Senate Agriculture Committee, which oversees the CFTC, proposed a new bill earlier this year that would make the CFTC the primary regulator of the digital assets industry and strengthen its control over cryptocurrency spot markets. Trading firms would also be required to register with the CFTC under the bill. Behnam expressed his support for the bipartisan bill, which would also allow the CFTC to charge regulatory entities fees in order to strengthen its financial power.

“We are [currently] appropriated money by Congress, which has put us in a position where we feel constantly on edge about how much money we will be appropriated,” Behnam explained at the NYU School of Law event. “We’re still feeling the aftereffects of about five or six years of flat funding.”

Behnam also stated that the agency’s limited financial resources and other constraints have prevented it from effectively combating bitcoin and other digital asset-related crime. Behnam added that because the CFTC lacks jurisdiction, it lacks traditional surveillance services and market oversight solutions to appropriately oversee trading platforms and other intermediaries.

These remarks come about a month after Timothy Massad, the former CFTC chairman, called for the CFTC and the U.S. The Securities and Exchange Commission (SEC) will form a self-regulatory organization to address the current crypto regulatory gaps (SRO).

Massad claimed that neither the CFTC nor the SEC has the authority to regulate bitcoin and other digital assets. There is currently a significant gap in regulating what he refers to as “the cash market for crypto assets,” which includes bitcoin trading activities on exchanges such as Coinbase or Kraken. While the United States Congress has attempted to address this issue through several bills, but Massad believes that an SRO is the solution.

SEC Chair Gary Gensler stated earlier this month that he supports the idea of giving the CFTC the role of top non-securities cryptocurrency regulator, but that Congress should not overlook the SEC if that happens. He emphasized the importance of ensuring that securities laws governing the $100 trillion capital markets are not undermined, as these laws have made capital markets the envy of the world.

At the moment, the CFTC is only in charge of regulating cryptocurrency derivatives, though many in Washington and the bitcoin-centered industry appear to support the idea of giving the agency control of cryptocurrency regulation.

Who will take advantage from regulation?

Many in the industry believe that a well-established regulatory framework could attract more institutional investors and boost bitcoin market adoption. Behnam also argued that digital asset firms see significant potential for “institutional inflows, which will only occur if these markets have a regulatory structure.”

Bitcoin projects, according to Behnam, “thrive on regulatory certainty,” and the organization hopes to have more clarity in the near future, allowing these companies to continue delivering innovative products that change people’s lives. Again, this is not surprising given Behnam’s consistent advocacy for the need to provide regulatory clarity to market participants, which many in the industry believe is lacking.

Finally, putting bitcoin under CFTC supervision could put an end to the entire securities debate. This increased clarity and visibility could pave the way for more institutional players to increase their exposure to bitcoin, as they insist on a clear regulatory framework governing digital assets.

While many people are calling for more regulatory clarity, some analysts believe that a comprehensive regulatory framework could harm some of the country’s largest companies, including Coinbase. Wells Fargo analysts initiated research coverage on Coinbase with an underweight rating, citing the risk of a more restrictive government stance toward digital assets as one of several factors.

Analysts wrote in the initiation note that a tougher regulatory environment, as well as continued macro headwinds, could have a material impact on Coinbase’s volumes and revenue in 2023.

“Regulation, in particular, will be a challenge for COIN, as evidenced by the SEC’s recent discussion of ‘cryptos as securities’ (e.g., for staked assets),” Wells Fargo analysts added.

In Conclusion

For years, the CFTC and the SEC have fought for control of the cryptocurrency industry. Both have been hesitant to issue much formal guidance for Bitcoin companies, preferring to set regulatory precedent through enforcement actions.

While some industry experts are opposed to the development of a comprehensive regulatory framework for Bitcoin, many continue to emphasize the importance of greater clarity in this area. While many Bitcoin natives remain opposed to any regulation, the added clarity may hasten the asset’s evolution.

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