Legislation needed to regulate crypto, CFTC Chair Behnam says, citing crypto's recent uptick in value

Cryptocurrency related issues are consuming the Commodity Futures Trading Commission's resources as its Chair Rostin Behnam again urged lawmakers to act on legislation that would give the agency new authorities over the industry.

More than 49 percent of the CFTC's enforcement actions in fiscal year 2023 were related to digital assets, and the market is continuing to grow, Benham said on Wednesday as he testified before the House Agriculture Committee. 

"It's a staggering statistic that a market we don't directly regulate is taking up half of our enforcement docket and it's not just the Division of Enforcement's resources that are consumed," Behnam told lawmakers. "We need the experts from the different divisions to build a case."

Behnam also pointed to the recent increase in cryptocurrencies' value and optimism from retail investors, calling it a "cautionary tale." 

"We need a regulatory structure," Behnam said. "This is not about legitimizing the technology. This is about protecting Americans and protecting investors."

The House Agriculture Committee and the House Financial Services Committee worked last summer to advance the Financial Innovation and Technology for the 21st Century Act out of their committees. The bill would shift more responsibility to the CFTC and would direct regulators to create a clear pathway for a digital asset to transition from being a security investment to a commodity. 

"This notion of crypto going away I think is just a false narrative and it wouldn't be an understatement to suggest that there's another period of irrational exuberance going on with these price swings and the volatility," Behnam said. "This just validates the fact that we need to act, Congress needs to act to fill this gap, specifically around bitcoin, which I think clearly is a commodity."

Is the bill too premature? 

Other lawmakers said they were concerned about the bill being premature given that there experts appear confused on how to define centralized versus decentralized and that the CFTC is already heavily focused on crypto enforcement. 

"You've got an industry that in just the last three years have lost $2 trillion on its market cap – that's 60 percent that is lost," said Rep. Greg Casar, D-Texas. "It's really volatile, so I worry about that when we really need to be protecting farmers and ranchers and dealing with oil and wheat. This other industry where some of these experts are saying we still can't even really define what decentralized is, I worry about setting the CFTC up or the American people up for failure here."

Behnam said his priority is always going to be traditional commodity markets, but cited an increase in the value of crypto as a demonstration that there is "real persistent adoption and demand from Americans to invest in this asset."

"We need to act, it is consuming a huge amount of our resources because there's so much fraud out there in the public space," Behnam said. 

Prometheum 

Behnam was also asked during Wednesday's hearing about whether ether is a security or a commodity. Behnam has said ether is a commodity, while fellow regulators at the Securities and Exchange Commission have not been as clear. 

This comes as crypto platform Prometheum received a special purpose broker dealer license from the SEC last year and announced last month that its subsidiary, Prometheum Capital LLC, will provide custodial services for ether. 

"I am concerned that the SEC will use this as an opportunity to circumvent Congress and even the CFTC in the space to further confuse participants who are already in the field," said Rep. Zach Nunn, R-Iowa, on Wednesday. 

Behnam said earlier during the hearing that he had not been in communication with Prometheum but said it was an independent decision by the firm to custody ether and was not a decision by the SEC.

"How this plays out obviously is really critical," Behnam said. "If we do have any action by the SEC to essentially validate that decision i.e. constituting ether as a security, it would then put our registrants, our exchanges who list ether as a futures contract sort of in non compliance of SEC rules as opposed to CFTC rules."