Trump admin eyes CFTC to lead digital asset regulation

The incoming Trump administration wants to expand the power of the Commodity Futures Trading Commission by granting it oversight of a significant portion of the $3 trillion digital asset market, FOX Business has learned.

The move would come as part of a broader effort by President-elect Donald Trump and the Republican majorities in Congress to roll back some of the regulatory power the Securities and Exchange Commission has wielded over the digital asset industry under President Biden and his outgoing SEC chairman, Gary Gensler.

The CFTC, often referred to as the "little sister" of the SEC, is mandated by Congress to oversee the $20 trillion U.S. derivatives market, which includes the trading of futures, options, plus physical commodities like gold, oil and wheat. Like the SEC, the CFTC has the power to establish market rules and bring enforcement cases, but it’s often perceived as having a lighter regulatory touch than the SEC because the derivative markets are dominated by sophisticated institutional players as opposed to small investors and therefore considered to be better equipped at managing risk.

With Trump taking office and the growing influence of the crypto industry in Republican politics, the CFTC’s role could soon expand to include the regulation of spot markets for digital assets deemed commodities — such as bitcoin and ethereum — along with the exchanges that facilitate their trading, according to sources with direct knowledge of the Trump team's thinking. More than 50 million people hold digital assets, but key players in the incoming Trump administration believe that less stringent regulation is needed to spur innovation in the crypto business, including the potentially transformative blockchain technology that eliminates costly middlemen in business transactions.

"With adequate funding and under the right leadership, I think the CFTC could hit the ground running to begin regulating digital commodities on day one of Donald Trump’s presidency," former CFTC Chairman Chris Giancarlo told FOX Business.

Giving the CFTC regulatory authority over the spot market for bitcoin and ethereum (which make up as much as 70% of the global crypto market) and possibly other tokens deemed digital commodities, would also give it the power to regulate the exchanges those assets are traded on. The move, if implemented, would mark a significant step toward providing regulatory clarity for companies and individuals involved in the trading of the two biggest cryptos by market cap, as no regulatory body currently has clear jurisdiction over those spot market transactions.

The uncertainty surrounding the classification of digital assets and the unwillingness of either the SEC or the CFTC to write specific rules has resulted in both agencies regulating the space through enforcement actions. The SEC, under Gensler, led a three-year industry-wide crackdown to reinforce his view that most cryptocurrencies besides bitcoin are securities, making both him and the SEC largely unpopular in the U.S. crypto industry and causing it to favor the CFTC as a primary regulator.

The SEC had no immediate comment.

Giancarlo, also known as "Crypto Dad," served as chair of the CFTC during Trump’s first term and is currently being considered for the role of "crypto czar" in the new administration — a new, so-far nebulous position that would help execute crypto policy and potentially oversee an industry-led advisory council.

He has long called for his former agency to play a larger role in the regulation of digital coins. In 2022, Giancarlo penned a letter to the Senate Agriculture Committee, which oversees the CFTC, in support of the agency having spot crypto authority, highlighting its early engagement with digital assets dating back to 2015 when it deemed bitcoin a commodity. Under Giancarlo, the CFTC approved futures trading for the price of bitcoin.

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Biden’s outgoing CFTC Chairman Rostin Behnam asked the agriculture committee at an oversight hearing in July for extra funding to start regulating the crypto markets more effectively than through enforcement. Behnam said around 50% of the agency’s enforcement actions this year were brought against crypto businesses, a "staggering statistic" for an agency that has no mandate to regulate the industry, he said.

The additional funding, which Congress would ultimately need to authorize, would be crucial for the CFTC to begin policing fraud and manipulation in the spot crypto markets. The agency’s operating budget in 2024 was more than five times smaller than the SEC’s — $400 million compared to $2.4 billion — and they employ around 700 staff compared to the SEC’s 5,300.

In terms of leadership under the new administration, it's unclear who Trump is considering to replace Behnam, but a handful of names have been floated, including current GOP commissioners Caroline Pham and Summer Mersinger, both pro-crypto candidates who often speak at industry events.

While the idea of the CFTC taking a larger role in the regulation of digital commodities would be a welcome one for the crypto industry, many traditional CFTC constituencies worry that giving the agency unprecedented authority over certain spot markets could spill over into the regulation of physical and agricultural commodities, which fall under the jurisdiction of other agencies like the Department of Agriculture. Giancarlo says those concerns would need to be addressed using specific language in any new legislation giving the CFTC spot authority over digital commodities.

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Trump’s plan to allow the CFTC greater oversight of crypto is part of a broader mission to restructure the relationship between the two main financial regulators, encouraging them to work together on certain crypto policies like the enforcement of stablecoin regulation. Trump also wants to overhaul the culture at the SEC following three years under Gensler, whose extensive rule-making agenda and progressive leanings resulted in the departures of many senior officials and a disgruntled employee union constantly at odds with him.

"There’s a lot of work to be done at the SEC — many of its top talent has left the building, so we need to get it functioning again and refocus its mission to a pro-innovation agenda," said Giancarlo, who succeeded Gensler as CFTC chairman in 2017. Giancarlo had previously been a favorite to replace Gensler as chair of the SEC under the incoming administration, but told the Trump transition team explicitly that he didn't want to "clean up the mess left by Gary Gensler for a second time."

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It’s unclear who Trump will tap to lead the SEC next, but sources close to the transition team say being pro-crypto is not the only quality of the candidates being considered. Outside of crypto, the SEC is also responsible for policing the $100 trillion securities markets including stocks, bonds, mutual funds, treasuries and more.

"The SEC has great bones, but whoever leads it next will need great policy chops as well as great admin skills to bring it back to being a contributing part of an administrative agenda," Giancarlo said.