A bill introduced by a Senate committee would grant the Commodity Futures Trading Commission “exclusive oversight” over what it defines as a “digital commodity.”
The Digital Commodities Consumer Protection Act of 2022, introduced by the Senate Agriculture Committee, outlines definitions for the new category of commodities, including Bitcoin and Ethereum but excluding financial instruments considered securities.
The legislation also mandates brokers, custodians, dealers, and trading facilities that deal in digital commodities register with the CFTC or face penalties. A similar bill introduced in the House of Representatives, the Digital Commodity Exchange Act of 2020, made registering optional for exchanges.
Whether digital assets are classified as securities or as commodities has long been a regulatory quagmire for crypto firms. According to a section-by-section breakdown of the legislation, it amends the Commodity Exchange Act to include digital commodities without appearing to define which assets constitute securities.
“These rules hold digital commodity platforms to the same standards as traditional financial institutions,” the Senate committee said in a statement. “Without appropriate oversight, customers will continue to be vulnerable to fraud and manipulation, and market participants will lack the regulatory certainty necessary to innovate and grow.”
In terms of jurisdiction, the CFTC would oversee transactions involving digital commodities, except for those leading to the purchase or sale of goods and services. The bill also permits digital commodity platforms—brokers, custodians, dealers, and trading facilities—to register with the Securities and Exchange Commission.
Previous SEC administrations have said both Bitcoin and Ethereum should be considered commodities, but the current chair, Gary Gensler, has been less forthright in labeling Ethereum as such, recently sidestepping the issue. The legislation just proposed could cement Ethereum’s classification as a commodity if it becomes law.
One feature of the bill is authorizing the CFTC to impose user fees on digital commodity platforms, which would fund oversight measures. The bill also seeks to outlaw abusive trading practices, mandate conflicts of interest be reported, and implement strong cyber security programs—requirements similar to those of traditional financial service providers.
The legislation would also require digital commodity platforms to create an environment of trust and transparency in financial markets, by publishing information about the commodities they deal with—like trading volume and volatility—while adhering to specific advertising standards.
Finally, the CFTC would study the racial, ethnic, and gender demographics of those engaged in digital commodity markets as customers, with the goal of funding education and outreach programs, under the proposed legislation.
Peter Van Valkenburgh, director of research at the industry think tank Coin Center, expressed overall support for the legislation but detailed caveats for some definitions possibly too broad, according a post on Coin Center’s website. Valkenburgh wrote, “By and large we appreciate the goal of the legislation.”
Benefits of the bill, he wrote, would be a more streamlined system of money transmission regulations than the current state-by-state patchwork system. Additionally, there would be more protections for consumers, and the SEC would see less pressure to regulate exchanges that aren’t trading securities.
The think tank didn’t approve of the legislation’s proposed definition of a digital commodities dealer, stating it “appears to include persons who are merely buying and selling cryptocurrencies for their own account.”
Also, Coin Center’s statement notes, it doesn’t seem fair to make individuals writing or publishing software register with the CFTC, along with those relaying or validating transactions on networks.
“Mandatory registration of these activities would not only crush the innovative nature of these technologies with unnecessarily burdensome requirements,” Valkenburgh wrote, “it would also violate our constitutional rights to speech and privacy.”