Introduction to the CFTC's Regulatory Proposals

Background and Current State of Crypto Regulations

The Commodity Exchange Act established the CFTC and limits its rulemaking authority to the powers it grants. A CFTC rule has the force of law within those constraints, but any extension beyond them would require Congress to enact new legislation. The CFTC's two proposals cover Bitcoin and XRP, requiring only leveraged-trading exchanges to register federally while spot exchanges remain under state oversight.

The CFTC's Regulatory Proposals

The first proposal, titled Regulation Crypto Asset Transactions, focuses on retail customers who trade cryptocurrencies using borrowed funds. This applies to futures commission merchants, firms that hold customer funds for futures trading. The second proposal, Regulation Crypto Asset Markets, explains how crypto platforms can register as a new type of federally regulated exchange. Notably, these proposals mention Bitcoin and XRP as among the covered digital assets.

Limitations of the CFTC's Authority

A CFTC rule has the force of law within the constraints of the Commodity Exchange Act. However, any extension beyond those constraints would require Congress to enact new legislation. This means that the CFTC cannot require crypto to trade exclusively on federally registered platforms without congressional approval.

Public Comment and Revision

Once the rules are published in the Federal Register, the public will have 60 days to comment. After considering the feedback, the CFTC can revise the proposals and must hold another vote before any rules go into effect. In an op-ed published on October 5, Selig clarified that the CFTC cannot require crypto to trade exclusively on federally registered platforms without congressional approval.

Conclusion

The CFTC's proposals are a step towards regulating the crypto market, but the agency's authority has limits. While the CFTC's rules can provide federal protections for retail customers using registered platforms, those on unregistered platforms will rely solely on state regulations. The SEC is also progressing on its own front, proposing new custody rules for crypto. A future administration could reassess these rules, and only Congress can amend a law.