The Shift in Regulating Cryptocurrencies as Commodities

The Senate is advancing legislation that would move towards regulating cryptocurrencies as commodities instead of securities—a significant step toward enabling spot trading.

A bipartisan draft from the Senate Agriculture Committee proposes granting the Commodity Futures Trading Commission (CFTC) explicit authority over spot market trading in digital commodities, distinct from the Securities and Exchange Commission’s (SEC) role.

This new legislation aims to provide a federal regulatory framework for trading spot non-security crypto assets, delineate responsibilities between CFTC and SEC, bolster consumer protection measures based on the CLARITY Act, and offer clarity and certainty to exchanges and investors. It also highlights self-custody protections, developers, and infrastructure providers.

Approaching Spot Trading

The door to spot trading could open soon as regulators like Acting CFTC Chair Caroline Pham push for leveraged spot crypto trading. U.S. crypto exchanges might introduce such products within the next month.

Historically, the SEC has overseen much of the crypto trading and approved ETFs holding digital assets. However, the industry argues that these assets are commodities, similar to gold, and should be regulated accordingly.

“This regulatory shift could be a substantial relief for an industry long wary of the SEC’s stance,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research.

Senate Approval

The House of Representatives designated the CFTC as the primary regulator for digital assets in the U.S. last year. The draft legislation is now more likely to pass with Republicans controlling the Senate and Democrats potentially on board due to New Jersey Democrat Cory Booker’s involvement.