(Part One) Commissioner Dawn Stump of the Commodity Futures Trading Commission (CFTC) lays out what exactly it means that Bitcoin is a commodity - and what she has publicly described as the ‘fallacy’ of the question as to whether other blockchain tokens are a commodity or a security. According to Stump, “there has often been a grossly inaccurate oversimplification offered which suggests these are either securities regulated by the Securities and Exchange Commission, or commodities regulated by the Commodity Futures Trading Commission.”
Stump has been on a campaign to set the record straight by issuing “concurring statements” whenever an enforcement action against digital assets is announced by the CFTC. Stump does not dispute the wrongdoing that occurred, but rather seeks to help the public better understand the true regulatory perimeter of the agency around digital assets.
Stump publicly released 10 concise points in an attempt to correct what she views as misperceptions and guide policymakers toward what really matters when it comes to digital asset regulation. “The prevalence of this misunderstanding about U.S. regulatory delineations has grown to a point that I believe requires correction,” said Stump. In addition, Stump has been issuing concurring statements to ensure the public does not end up with a false sense of security as to the extent of the regulatory perimeter for the fast-growing digital asset marketplace.
Commissioner Dawn DeBerry Stump of the Commodity Futures Trading Commission (CFTC)
As Congress considers legislation aimed at providing regulatory clarity for the cryptocurrency industry, Stump is not alone in her concerns either. Former Chair of the CFTC (and Harvard) Timothy Massad stated in a hearing titled “Demystifying Crypto: Digital Assets and the Role of Government” that, “the CFTC only regulates derivatives contracts - the CFTC can’t regulate the cash market of bitcoin any more than it can regulate the sale of cows because it regulates cattle futures...Even one of the Republican Commissioners said this is going to mislead the public into thinking that we regulate these exchanges and we don’t.”
Concurring Statements Stump Made In 2021 On Digital Assets
In March 0f 2021, the CFTC ordered Coinbase Inc. to pay $6.5 million for false, misleading, or inaccurate reporting and wash trading. In her concurring statement, Stump stated, “ I write separately, though, to ensure the public is not misled to believe that the CFTC regulates exchanges such as Coinbase. It does not.”
In October of 2021, the CFTC ordered Tether and Bitfinex to pay fines totaling $42.5 million. Yet again, Stump’s concurring statement points out, “However, because this is the first time the CFTC has applied the CEA’s broad definition of “commodity” to a stablecoin, I wish to reiterate my concern that enforcement actions such as this involving digital assets may cause confusion about the CFTC’s role in this area.”
Jonathan Marcus, Partner at Reed Smith LLP and former General Counsel at the CFTC said, “The CFTC has the authority in the spot markets to go after fraud and manipulation and has done that in a number of instances”. Marcus also said, “the CFTC generally has no authority to issue rules to regulate the spot market. The ability to set up front rules to govern a marketplace can protect against fraud and manipulation.” Marcus noted that this means the current (crypto assets) market is not fully regulated up front and lacks things such as registration and disclosure requirements.
Olta Andoni, Adjunct Professor of Law at Chicago Kent College of Law and former Chief Legal Officer of Nifty’s, stated "I definitely agree with Commissioner Stump- this type of confusion among the public exists and clarifying the extent to which the CFTC can be involved in the digital asset marketplace is crucial."
Bitcoin cryptocurrency coin and the green line of a graph are pictured in Kyiv on 29 July, 2021. ... [+]
The question with respect to digital assets such as Bitcoin - after better understanding the role of the CFTC as laid out by Stump - is then to determine as to whether there needs to be any additional regulations for the marketplace. In my next post, I will share an exclusive interview with Stump who discusses her broader interest in digital assets and what she hopes the public better understands when it comes to reliance on whether these new markets are truly regulated or not.
