The cryptocurrency landscape is poised for potential regulatory clarity under the Trump Administration, primarily through the expansion of the Commodity Futures Trading Commission’s (CFTC) authority. This shift aligns with the Administration’s goal of reducing the Securities and Exchange Commission’s (SEC) oversight power, a move that could benefit the cryptocurrency industry.
Currently, the SEC and CFTC have competing definitions of cryptocurrencies. The SEC classifies digital assets as securities under the Howey Test, while the CFTC defines them as commodities. This discrepancy leads to jurisdictional conflicts, as cryptocurrencies often exhibit characteristics of both securities and commodities. For instance, some coins function primarily as investment tools, resembling securities, while others, like Bitcoin, are more akin to commodities due to their structure within a blockchain database.
Recent Legislative Developments
The U.S. House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT 21) in May 2024, aiming to clarify jurisdiction between the SEC and CFTC. FIT 21 categorizes cryptocurrencies into distinct categories: digital commodities, restricted digital assets, and permitted payment stablecoins. The bill would expand the CFTC’s authority over spot markets while reducing the SEC’s authority to assets without decentralized blockchain technology.
Key Provisions of FIT 21
- Assigns commodities to the CFTC after initial SEC approval
- Digital assets failing to meet commodity decentralization requirements remain under SEC purview
- Limits SEC’s reach by narrowing the definition of “federal security”
- Faces challenges in providing clarity for cryptocurrencies with hybrid structures
Stablecoin Regulation
The U.S. Senate is progressing with legislation to regulate stablecoins, with two notable bills:
- Clarity for Payment Stablecoins Act introduced by Senator Bill Hagerty (R-Tenn.)
- Payment Stablecoin Act introduced by Senators Kirsten Gillibrand (D-N.Y.) and Cynthia Lummis (R-Wyo.)
Both bills aim to oversee stablecoins, which are digital currencies pegged to traditional currencies like the U.S. dollar, with the Federal Reserve and state regulators playing key roles. The main difference lies in their regulatory approaches, with the Lummis-Gillibrand PSA proposing a dual regulatory environment and the Clarity for Payment Stablecoins Act allowing state-level regulators to handle the process without Federal Reserve input.
Future Outlook
The Coinbase CEO predicts that crypto legislation will progress “fairly quickly” in the Trump Administration due to Republican support for crypto development. Alternatively, the Trump Administration could encourage a joint SEC-CFTC statement to clarify agency authorities, though this path is more reversible.
The United States requires a clearer regulatory framework for cryptocurrencies, prioritizing consumer protection and economic policy. The Trump Administration should pursue FIT 21’s passage to resolve the current jurisdictional conflict. Additionally, Congress should pass one of the stablecoin bills to establish cohesive, nonpartisan regulation of dollar-backed stablecoins. A clear regulatory framework will protect individuals and institutions, ensuring the U.S. maintains its currency dominance as digital assets grow in importance.
