Senate Draft Bill Seeks to Bring Crypto Under CFTC Oversight

Will the long-awaited crypto bill pass before the end of the year? The bi-partisan Senate Committee on Agriculture, Nutrition, and Forestry finally gave crypto investors their first look at a draft of a bill that will regulate crypto markets in the US. There weren’t any huge surprises but it appears to build on the CLARITY act (which already passed in the house) by handing the Commodity Futures Trading Commission (CFTC) expanded authority over crypto spot markets. The bill also laid out several new compliance requirements for trading platforms. Defining “digital commodities” On November 10, Committee Chairman John Boozman (R-AR) and Senator Cory Booker (D-NJ) released the draft of the legislation, which builds on the CLARITY Act that passed the House of Representatives back in July.  Primarily, the bill defines a “digital commodity” as “any fungible digital asset that can be exclusively possessed and transferred, person to person, without necessary reliance on an intermediary, and is recorded on a cryptographically secured public distributed ledger.” This definition is expected to cover most traditional cryptocurrencies. Furthermore, the bill’s core provision expands the Commodity Futures Trading Commission’s (CFTC) mandate, moving its authority beyond futures and derivatives to include direct oversight of the spot market for digital commodities. To operationalize this oversight, the legislation imposes specific requirements on market participants. Crypto spot trading platforms will be mandated to register with the CFTC and adopt comprehensive compliance measures. Key aspects of the bill include: CFTC Oversight: Grants the agency authority over crypto spot trading regulation. Platform Registration: Requires crypto spot trading platforms to register with the CFTC. Compliance Measures: Mandates the adoption of anti-fraud, recordkeeping, fund-segregation, and dispute-resolution measures. Dedicated Funding: Creates a dedicated funding stream for the CFTC, effective 270 days after enactment, to allow for a transition period for market operators. A separate set of registration requirements for crypto brokers and dealers is also outlined, though the specifics of exemption powers remain under discussion. Industry leaders welcome regulatory progress While several aspects of the new bill remain up for debate, the overall reception appears to be that of cautious optimism.  Responding to the draft, Bill Hughes, Senior Counsel and Director of Global Regulatory Matters at ConsenSys, called it a positive step for protecting self-custody rights. Multiple industry advocacy groups and lobbyists have publicly urged Congress to pass the legislation, citing the critical need for market structure clarity. The draft bill forms just the latest in a set of positive developments regarding regulation in the industry.  A day before its release, interim CFTC Chairman Caroline Pham confirmed active discussions with regulated exchanges to launch leveraged crypto spot products in the near future. On the same day, the Internal Revenue Service (IRS) updated its guidance on crypto exchange-traded products (ETPs) to allow trusts to stake digital assets and earn rewards.  According to the guidance on the IRS’s website, crypto trusts will now be allowed to participate in staking activities, as long as these activities are conducted on a national securities exchange, hold only cash and “units of a single digital asset type,” are held by a custodian, and include appropriate risk management measures.