Rostin Behnam, the head of the U.S. Commodity Futures Trading Commission, said he has already directed his agency to begin preparing to be the major, fully funded regulator for much of the crypto market, as anticipated in Senate legislation.

“The volatility in the market, and its impact on retail customers – which may only worsen under current macroeconomic conditions – emphasizes the immediate need for regulatory clarity and market protections,” Behnam is set to tell members of the Senate Agriculture Committee in testimony set for delivery on Thursday. A bill being pushed by committee leaders to create new rules for the crypto industry, putting Behnam’s agency at the center of federal oversight, recognizes “the CFTC’s expertise and experience make it the right regulator for the digital asset commodity market,” he added.

Committee Chairwoman Sen. Debbie Stabenow (D-Mich.) unveiled legislation last month with the panel’s ranking Republican, Sen. John Boozman (R-Ark.), that would give the agency substantial reach to regulate digital assets trading, including authorizing the CFTC to oversee crypto spot markets.

However, it wouldn’t let the agency define which tokens it would police, still giving the courts and the Securities and Exchange Commission leeway to figure out which assets would be defined as SEC-regulated securities.

Still, Behnam praised the legislation and its plan for additional agency funding that will allow the CFTC to “move swiftly” to establish the new oversight over digital commodity assets, which the courts, lawmakers and regulators conceded includes bitcoins, though other assets’ status are less clear. “All digital commodity platforms must maintain adequate financial, operational, and managerial resources, segregate customer funds, and comply with commission requirements for the treatment of customer assets,” Behnam said. “These tools have proven effective in preserving customer funds and market operations in times of instability, uncertainty, or market misconduct.”

This Senate panel only has sway over the CFTC, and the Stabenow-Boozman bill stuck to that jurisdiction, unlike other efforts that have sought more sweeping regulations for the industry. Stabenow noted that keeping the bill in a single committee streamlines its ability to reach the Senate floor for a wider vote.

"This is a glaring hole in our financial system, and I believe we must close it," Stabenow said during the hearing, agreeing with Behnam that the CFTC is the "right regulator" for this work. "This is a big responsibility with a lot at stake."

One aspect of the bill would call for the agency to examine the environmental problem of high energy usage in crypto mining, though Behnam nodded toward the Ethereum Merge as a positive sign.

"An event occurred last night with Ethereum that which is going to reduce energy consumption -- a step in the right direction but certainly not resolving the problem," he said

Similar legislation has been introduced in the House, but the legislative session is waning as midterm elections approach, leaving little time for bills to clear Congress before the end of the year. However, multiple bills have now suggested the CFTC take a central position in crypto oversight, and that momentum is expected to continue as the efforts get closer to the finish line.

Behnam said his agency, with a current budget of about $320 million a year, would need an extra $112 million for the first three years of putting this new oversight into place. The legislation would set up industry fees to pay for that extra cost, which would largely come from training and hiring people to handle the new crypto workload.

Several figures from the crypto industry also testified before the committee on Thursday, including representatives from U.S. crypto platform Coinbase and trading giant Citadel Securities.

"We are at a crossroads when it comes to crypto," said Christine Parker, a vice president and deputy general counsel for Coinbase. She asked the lawmakers to set a clearer border between commodities and securities in the bill, arguing it could "be strengthened by further defining digital asset commodities to ensure assets that do not meet the definition of securities are regulated by the CFTC and not by enforcement through the SEC."

The Blockchain Association, a Washington-based crypto advocacy group, agrees with that point, including it among a list of concerns the association outlined in a Thursday statement. The Stabenow-Boozman effort's definition of digital commodities is "too narrow and vague and must be clarified to draw a clear dividing line between the CFTC and SEC." The group also contends the bill could threaten decentralized finance (DeFi) by "applying the same rules to centralized intermediaries and decentralized protocols."

UPDATE (Sept. 15, 2022, 18:10 UTC): Updates with comments from the Blockchain Association