On February 9, 2022, the Senate Committee on Agriculture, Nutrition, and Forestry (“Senate Agriculture Committee”) hosted a virtual hearing entitled, “Examining Digital Assets: Risks, Regulation, and Innovation.” The hearing focused on potentially expanding the scope of the Commodities Futures Trading Commission (“CFTC”)’s regulatory authority to cover digital asset commodities. The hearing is indicative of a broader interest of the Senate Agriculture Committee in the high profile and rapidly growing digital asset space, given that the Senate Agriculture Committee has traditionally deferred to the U.S. Senate Committee on Banking, Housing, and Urban Affairs (“Senate Banking Committee”) on financial services matters.
The hearing involved two separate panels of discussion: one with Rostin Behnam, Chairman of the CFTC, and another with a panel of three industry witnesses and one academic witness.
In his testimony, Chairman Benham emphasized that “the digital asset commodity cash market would greatly benefit from greater CFTC oversight.” He noted that, the CFTC currently does not have direct statutory authority to regulate cash (or spot) markets, although it does have enforcement authority with respect to fraud and manipulation in such markets. Chairman Benham also mentioned that the CFTC has been working with the White House to draft an executive order regarding digital assets.[1]
The second panel included three industry witnesses and one academic witness – Sandra Ro, Chief Executive Officer of the Global Blockchain Business Council, Samuel Bankman-Fried, Founder and Chief Executive Officer of FTX, Perianne Boring, Founder and Chief Executive Officer of the Chamber of Digital Commerce, and Kevin Werbach, Professor at the Wharton School at the University of Pennsylvania. These witnesses discussed several issues, including bitcoin mining’s shift to the Americas and its effect on climate change, considerations for developing a framework for digital asset regulation, potential expansion of CFTC authority, cybersecurity, and anti-money laundering concerns.
Potential Congressional Action
Throughout Chairman Benham’s testimony, he highlighted the need for Congress to expand CFTC oversight capabilities of the digital asset commodities markets, noting that the CFTC currently does not have the authority to implement critical regulations, such as pre-trade and post-trade transparency, or market surveillance tools in these markets. At the same time, Chairman Benham stopped short of calling for broad CFTC oversight over all digital assets, as many digital assets are considered securities subject to regulation by the U.S. Securities and Exchange Commission; instead, Chairman Benham called for “clear, distinct rules of the road of what might constitute a commodity versus what might constitute a security.”
Although there was a general bipartisan support within the Senate Agriculture Committee to ensure market integrity and customer protection in the digital asset space, legislators were divided along party lines regarding whether legislation was necessary and, if so, the scope of such legislation. Senate Agriculture Committee Chair Debbie Stabenow (D-MI) seemingly supported an expansion of the CFTC’s authority, as many of her questions to Chairman Benham and the other witnesses focused on how such expansion would allow the agency to better address fraud and manipulation concerns in this space. Other Democrats, including Sen. Cory Booker (D-NJ) and Sen. Amy Klobuchar (D-MN), expressed similar sentiments. However, other committee members, including Ranking Member John Boozman (R-ARK), raised concerns that an expansion of CFTC authority in the digital asset space may lead to the CFTC seeking further regulatory authority of other traditional commodity spot markets.
Other Key Issues Discussed
- Cybersecurity. Members of both parties, including Ranking Member Boozman, Sen. Tommy Tuberville (R-AL), and Sen. Kirsten Gillibrand (D-NY), emphasized the importance of addressing cybersecurity threats in the digital asset space. Ranking Member Boozman particularly emphasized the need to safeguard consumers’ digital assets, while Sen. Tuberville highlighted the potential for foreign adversaries to use digital assets in connection with cybercrimes.
- Climate Control. Chair Stabenow, Sen. Gillibrand and other Senate Democrats highlighted concerns about the contribution of bitcoin mining to climate change, especially given the U.S.’s emergence as a leader in the world’s bitcoin mining industry. Bitcoin mining requires extensive computer processing power, which, in turn, increases the demand for electricity and consumption of fossil fuels.
- Anti-Money Laundering and other Compliance issues. Member of both parties, including Sen. Roger Marshall (R-KS) and Sen. Sherrod Brown (D-OH) (also the Chairman of the Senate Banking Committee), probed how the CFTC, if granted additional authority, would address anti-money laundering concerns within the digital asset industry. Further, Sen. Marshall raised concern regarding the use of cryptocurrency to participate in illicit activity, such as human trafficking and drug running, and inquired about the CFTC’s plan to ensure that appropriate know your customer requirements are in place.
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For more discussion on House and Senate hearings discussing digital asset regulation see our other posts:
- House Financial Services Holds a Hearing Regarding the President’s Working Group Report on Stablecoins
- President’s Working Group on Financial Markets and Federal Banking Regulators Issue Report on Stablecoins
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[1] A draft of the executive order is reportedly complete and awaiting approval from President Joe Biden. See Saleha Mohsin et al, Yellen-White House Split Slows Arrival of Crypto Strategy, BLOOMBERG (Published Feb. 16 2022), https://www.bloombergquint.com/business/yellen-white-house-said-to-be-split-on-crypto-executive-order.
