An exit interview with Brian Quintenz on his move from the CFTC to the crypto industry

Throughout his four years at the Commodity Futures Trading Commission, Brian Quintenz was one of the regulators most engaged in the world of crypto. His tenure corresponded with the launch of LabCFTC, an arm of the agency focused on fintech innovation, including digital assets. And during his time in government, Quintenz made frequent appearances with industry media outlets ranging from CoinDesk to Peter McCormack’s What Bitcoin Did podcast. 

It was, then, little surprise that Quintenz went from his post as CFTC commissioner to an advisory position at Andreessen Horowitz, or a16z, working on the VC fund’s crypto portfolio. He’ll be part of a growing team of former regulators helping a16z parse the regulatory landscape. It’s a part-time position, so his future full-time plans remain a subject of speculation.

During a recent interview with The Block, Quintenz declined to elaborate on those other plans. But he did answer questions about his old agency, the role of the CFTC versus that of the Securities and Exchange Commission (SEC) in the context of crypto and his transition from the CFTC to a16z.

Approaching the CFTC

The CFTC’s jurisdiction over digital asset markets includes regulation of futures markets and enforcement authority over manipulation and fraud in spot markets. Quintenz’s time at the agency saw a major uptick in interactions between crypto and regulators. It also overlapped with the chairmanships of Chris Giancarlo and Heath Tarbert, both of whom are also noted crypto advocates. 

Quintenz voiced confidence in the CFTC’s direction, both during his time and under Rostin Behnam, whom the Biden administration has nominated to chair it. “It is a regulator that wants to have an open and open dialog and a frequent dialog with innovators and entrepreneurs,” he said.

He said the agency’s noted "principles-based" standards for regulation are the subject of praise from effectively all industry players regulated under them. Proponents of the approach say it avoids turning regulation into a series of boxes to check. Critics say it lets businesses off the hook. 

Quintenz’s advice to firms who may have to deal with the CFTC is mostly to be assertive in outreach. “My suggestion would be to knock on doors, be open, be transparent,” he said. “And if the relationship or the posture has to change, then that’s what happens. Or it can be what happens under certain circumstances.”

On delineating the CFTC and the SEC

He also shared some of his views on a topic that has become a perennial pressure point on the discussion of crypto regulation in the U.S.: The respective authorities of the CFTC and SEC.

Having by far the largest capital markets in the world, the U.S.’s handling of crypto regulation ends up having an outsized effect on the global market. Consequently, the debate over the authorities that each agency should have over the crypto industry has worldwide implications. 

A tectonic shift is currently happening in the SEC and CFTC debate. Current SEC Chair Gary Gensler has spent much of the six months since his April confirmation campaigning to bring crypto exchanges under the SEC’s national regulatory regime for securities exchanges — a far cry from current state-by-state money services or money transmission licensing. 

As it stands today, the only digital assets that unambiguously fall within the SEC’s purview are security tokens. Platforms that offer those to the retail public like tZero or Securitize already report to the SEC under a regulatory regime. But while staff at the SEC has publicly said that Bitcoin and Ether are not securities, the industry has long awaited some sort of guidance as to which other tokens are or are not securities. 

Meanwhile, the CFTC has treated digital assets like commodities, but it is a common misconception within the crypto industry that a commodity cannot also face regulation as a security. 

Gensler has taken to sidestepping questions of whether a particular token is a security, saying some variation of what he said in a speech at the beginning of August:  “While each token’s legal status depends on its own facts and circumstances, the probability is quite remote that, with 50, 100, or 1,000 tokens, any given platform has zero securities.” It’s a not-so-subtle way of saying that all of those platforms for trading crypto should themselves register with the SEC as securities exchanges.

Quintenz was clearly hesitant to contradict Gensler’s logic, but he is adamantly opposed to regulation through enforcement. Critics say the SEC has taken this approach to the crypto industry, especially with its legal interventions against firms like Ripple, Block.one and Telegram for massive sales for XRP, EOS and GRAM. 

“We do not have in this country — and it is by choice — any oversight regulatory regime that looks at data reporting, capital standards or things like that for spot commodity trading activities or venues,” Quintenz said. “So having that activity fall within the purview of a regulator would be a regime change. And I think that is a question for Congress to answer.”

Congressional statute can override the policies and rulemakings of any particular regulator, but there has been limited political momentum to change the operations of the CFTC and SEC in crypto.

Overall, the industry is eager to fall under commodities law rather than securities law, partially because of the lack of a regulatory regime in the spot markets, though the CFTC enforces against fraud and manipulation in spot markets. 

In addition to a difference in mandates, the two commissions have wildly different resources at their disposal. The CFTC operates with some 700 full-time employees. The SEC’s crew numbers over 4,000. 

Defining NFTs

In some form or other, the debate over when crypto tokens step into securities territory has been ongoing for almost a decade, with the 2017-2018 ICO boom just a catalyst for major government intervention. The ascendance of non-fungible tokens in recent months has opened up an interesting corollary to the debate, as many advocates argue that NFTs resemble art trading more so than commodities or securities. 

This came to a head last month with the revelation that Nate Chastain, one of the founders of leading NFT market OpenSea, had been buying up NFTs in advance of their listing on the platform’s front pages. 

While Chastain subsequently left OpenSea, the argument stands: What happened, legally? 

OpenSea is part of a16z’s portfolio, so Quintenz would not speak to the specific case of Chastain, but he did address the broader question: If NFTs are commodities or securities, a whole host of insider trading and frontrunning prohibitions kick in. But if they are art? The art world is notoriously freewheeling.

“From my view, commodities have to have a certain level of fungibility to be considered a commodity. And to the extent that NFTs are unique or have a finite number of unique items that don't make them truly fungible, then in my view they wouldn't necessarily be commodities and be subject to commodity regulation.”

From the CFTC to a16z

Quintenz sees cryptocurrency as a revolutionary technology, and that’s how he explains joining 16z.

“I said this when I left the agency, and I'll say it as often as I can. I wanted to specifically keep crypto and DeFi relevant to my future career because I believe in the technology and the innovation,” he said.

As for a16z specifically? Quintenz called it “a firm that I don't view as having an investment track record. I view them as having a visionary track record.”

Justifying the ways of regulator to degen is a booming industry within a booming crypto industry. The a16z advisory team already included former leaders from the Biden team, the Treasury, and the SEC.

One of those leaders is Bill Hinman, former director of the SEC’s division of corporate finance and a key figure in the debate over whether cryptocurrencies are securities. "His 'When Howey Met Gary' speech was a revolutionary thing to read coming from the director of a regulatory agency," said Quintenz of the 2018 speech in which Hinman argued that a "sufficiently decentralized" token may not be a security.

Regulatory debates aside, Quintenz was also eager to celebrate the market’s stunning growth. 

“We also need to take a step back and say some very popular, successful, widely used and heavily accessed businesses have developed over a very short period of time without a regulatory regime or a federal regulator and created and supported a market that has very robust liquidity and price transparency,” he said. “Let’s celebrate that first.”