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Former CFTC Chairperson Hints that ‘Regulation by Enforcement’ is Not Working for Crypto

Published July 11, 2023 12:23 PM
Omar Elorfaly
Published July 11, 2023 12:23 PM

Key Takeaways

  • Former CFTC Chair wants to create a self-regulating coalition made up of the SEC and the CFTC 
  • Timothy Massad  thinks crypto companies are optimistic about the 2024 elections
  • Massad and Clayton show an affinity for Bitcoin and Ethereum

Timothy Massad, former chairperson of the Commodity Futures Trading Commission had an interview with CNBC , giving his opinion on the measures needed for proper regulations of the crypto market. Massad’s thoughts revolved around creating regulations alongside ongoing litigations.

As the CFTC and the SEC are at legal odds with major crypto exchanges and lenders, Massad believes that regulators should still work on creating market guidelines that guarantee customer security and market transparency. He also sees that litigation serves as a stalling measure in favor of crypto companies, hoping the 2024 election would come to their aid.

A Clear Framework For Crypto

“Let’s not get hung up on that, or rather, let’s have a parallel track which says, regardless of the classification issue, we need standards today,” – said Timothy Assad during his interview . The former CFTC Chair highlighted the importance for regulatory bodies such as the CFTC and SEC to continue developing clear regulations for the crypto market, alongside ongoing litigations with companies such as Coinbase and Binance.

“We strongly support enforcement of the laws, but what we’re saying is, we need more than that, and the reason is twofold.

One is litigation takes a long time, and, quite frankly, the crypto industry may find it’s in their interest to stretch these cases out because they may be hoping for a change in regulatory attitude with the 2024 election. The second reason is, it won’t resolve all the issues that we need to get resolved.”

Massad also pointed out the importance of creating a self-regulatory body comprising both SEC and CFTC officials that would continue to set basic industry standards. Said industry standards would help both governmental entities and business institutions eventually get over the hurdle of not knowing what constitutes a security, and what constitutes a commodity. 

“This is a way to get investor protection standards into the industry as it exists today without having to change the securities or the derivatives laws fundamentally.”

A Path Forward Paved By Veterans

Last week, former CFTC Chair Massad and former SEC Chair Jay Clayton wrote down their thoughts  on the regulations needed in light of current events in the crypto market. 

“We continue to support the rigorous enforcement of our time-tested securities and derivatives laws. But we also believe that these enforcement actions, in themselves, are unlikely to bring about a significant improvement in investor protection and market integrity quickly,” – read their article. 

Clayton and Massad pointed out the issue of constant litigation against industry leaders such as Coinbase and Binance. Their idea is that litigation consumes a lot of time, to no real benefit. 

“Broad victories for the regulators won’t resolve key issues, such as how to create federal oversight of the trading of tokens that aren’t securities—such as bitcoin and Ethereum, which together represent at least 70% of the crypto trading market.

These lawsuits are unlikely to address questions of whether existing laws need to be adjusted to deal with particular features of digital tokens. These include whether a platform should be able to trade both “security” tokens and “commodity” tokens like Bitcoin, how best to address custody or the safeguarding of customer assets, and how to ensure adequate disclosure about the tokens.”

The general gist of their proposal is that the CFTC and the SEC should work on creating basic standards for both investors and institutions as they stand today. Instead of resisting market development, the regulating bodies should set standards that fit the shape of the current market. They also added that “Having Congress mandate this approach would be even better.’

A Bitcoin And Ethereum Future

Throughout his interview, Massad mentioned Ethereum and Bitcoin by name without bothering to mention any other tokens. The same goes for the article written by both Massad and Clayton. 

While this may come off as the previous chairs just mentioning the most notable names, it comes as a recognizable pattern.

The current SEC Chair Gary Gensler is a strong supporter of four specific tokens: Bitcoin, Ethereum, Litecoin, and Ethereum. He made this very clear as his current litigation with the aforementioned exchange does not include mention of these tokens at all.

William Hinman, a former director of the SEC also gave a speech that focused specifically on Ethereum. Although his cabinet members advised against narrowing down his speech to just Ethereum, Hinman insisted on maintaining an Ethereum-only context in his speech.

Hinman’s speech recently resurfaced as a US-based exchange called Ripple has been facing a lawsuit filed by the SEC for the past couple of years. The exchange called upon the Hinman documents, messages that accompanied the former SEC’s speech, in order to highlight how he described crypto tokens as “not securities if sufficiently decentralized.”

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