The U.S. Senate Committee on Agriculture, Nutrition, & Forestry ("Committee"), considered testimony from key regulators and market participants on the bipartisan Digital Commodities Consumer Protection Act of 2022 ("DCCPA").
Committee Chair Debbie Stabenow (D-MI) described the bill as giving the CFTC complete oversight over digital assets that act like commodities (see previous coverage). Senator Stabenow said that the need for regulation and oversight over the digital asset markets is crucial, stating that "$1.9 billion worth of cryptocurrency was stolen in hacks in the first seven months of this year alone - up 60 percent from this time last year." She further stated that while there is a substantial increase in the number of Americans investing and trading in cryptocurrencies, a third of those individuals "earn less than $60,000 a year" and "cannot afford to lose their savings because of a lack of guardrails in these markets."
The Committee heard testimony from CFTC Chair Rostin Behnam, who said that the CFTC is ready to take on the challenge of regulating the digital asset commodity market and has the "experience and expertise" that makes it the ideal regulator for the market. He emphasized that the unregulated nature of digital assets disproportionately affects lower-income investors and historically underserved communities, which, he said, highlights the importance of establishing a comprehensive federal regulatory regime as soon as possible. Mr. Behnam reiterated his support of the DCCPA's various tools to enhance the CFTC's ability to regulate digital assets, and emphasized the importance of a comprehensive federal regulatory regime given such markets' "significant speculative retail participation," "high levels of leverage" and "platform-based custody arrangements outside of the traditional regulated banking sector."
The Committee also considered the testimony of representatives from cryptocurrency-related companies, broker-dealers and other market participants.
Chief Legal Officer of Citadel Securities Dr. Heath P. Tarbert expressed Citadel's support for the DCCPA, but warned against regulation by enforcement and urged Congress to reinforce that point in the bill. Dr. Tarbert supported the principles-based regulatory approach detailed in the bill, but called for (i) further clarification of the DCCPA's new categories of registrants; (ii) greater protection for market participants from "adverse retroactive government or private actions if digital commodities certified in accordance with the [DCCPA] are subsequently reclassified as securities"; and (iii) ensuring that market participants who reasonably apply the DCCPA's principles in good faith "are not later subject to arbitrary, post hoc enforcement actions" (i.e., rulemaking by enforcement).
CEO of the Crypto Council for Innovation Sheila Warren stated that the DCCPA is a "pivotal step" toward achieving necessary federal regulatory oversight over digital commodity markets, but expressed concern that the bill lacks clarity and includes vague definitions which could lead to confusion among market participants. She said that the bill requires further specification regarding the parameters of the CFTC's jurisdictional authority that take into account the SEC's jurisdiction over crypto securities, and requires clarity on the relationship between the DCCPA's provisions and decentralized protocols.
Vice President and Deputy General Counsel of Regulatory of Coinbase Christine Parker supported the bill, saying that it creates a "much-needed comprehensive and robust regulatory framework for spot markets for digital asset commodities." Ms. Parker recommended that the DCCPA include a specific definition of "digital asset security" to provide clarity around what digital assets will constitute securities regulated by the SEC. She added that Coinbase believes that the provisions of the DCCPA concerning segregation requirements for platforms holding customer assets could be strengthened by providing further clarity as to how these provisions may operate differently from similar requirements applied to cleared derivatives markets.
CEO of Stellar Development Foundation Denelle Dixon added that the bill is a "consequential step towards creating [an] innovative and inclusive financial system." She expressed concern, however, that as currently drafted the bill might appear to "cover aspects of the technology rather than the participants offering products and services that leverage the technology." Ms. Dixon stated that regulation targeting the technology rather than how the technology is used will stifle innovation. She also called for a definition that more clearly outlines those businesses and individuals that would be "subject to these regulations."
Director of Financial Regulation and Corporate Governance at the Center for American Progress Todd Phillips said that the bill would provide significant customer protections while giving the CFTC ample room to regulate the market while also retaining SEC authority over those crypto-assets that are securities. Mr. Phillips recommended the following amendments: (i) remove reference to specific assets, such as Ether, in the definition of "digital commodity" due to current debate regarding whether changes to the Ethereum blockchain will make Ether a security; (ii) clarify that the listing of a digital asset on a digital commodity platform "does not provide a presumption that the asset is a commodity"; (iii) add a prong to the definition of "digital commodity" that includes assets "transferred on a blockchain or similar technology" to include crypto miners and stakers as intermediaries subject to federal regulation and (iv) allow the SEC to have concurrent jurisdiction over digital commodity transactions involving securities.