US Futures Trading Panel May Regulate Digital Currencies

Commodity Futures Trading Commission likely to be given charge of regulating digital currencies

CFTC Commissioner Summer Mersinger said cryptocurrency developers and US lawmakers are moving the Commodity Futures Trading Commission to regulate digital currencies.

The designation will expand the CFTC’s mandate to oversee the agricultural, energy and financial options markets and pave the way for the agency to regulate other digital assets such as non-fungible tokens, or NFTs.

Separately, the CFTC is looking at how the carbon trading market operates with a view to their use in hedging and risk management.

Ms Mersinger, one of five commissioners on the independent board that oversees commodity and financial futures markets, was speaking on the sidelines of the Reuters Commodity Trading USA conference in Houston on Tuesday.

Major crypto companies have supported the CFTC, and on Tuesday US Senator Cynthia Loomis, Republican of Wyoming and Kirsten Gillibrand, Democrat of New York, filed a bill that would make the CFTC the industry’s main observer.

“You see the industry becoming the primary regulator around the CFTC,” Ms. Mersinger said.

Lawmakers have not decided which agency will oversee cryptocurrencies, but the proposed Lumis-Gillibrand bill provides a starting point for congressional debate.

The CFTC has begun its review of the potential role on cryptocurrencies, with staff looking for opportunities in areas such as spot-market crypto trading “where we can play some expanded role,” said Ms. Mersinger. It cautioned that the agency has historically not regulated spot markets and that its review is preliminary.

“We are still a strong regulator, but our registrants have a lot of flexibility,” she said. “They are very interested in that approach in a top-down way some other financial regulators do,” she said.

Carbon trading is another area where the CFTC is interested. Its regulation is now largely controlled by industry groups and is voluntary on the part of the participants.

“We have an interest in that space but we do not regulate that space,” Ms Mersinger said. One consideration, he said, is what changes might be needed for voluntary markets to function properly.

He said that in 2020, when US oil futures turned negative for the first time on fears of a lack of physical storage amid plunging demand, the CFTC issued an advisory warning of risks that not enough people took seriously, he said.

It learned a lesson that broad inter-agency cooperation with exchanges and traders and discussions on contract settlement terms was needed, she said.

“At the end of the day, storage was not as big an issue” as feared, but it was not well communicated, she said.

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