After the SEC’s “massive attack”, will the CFTC also strike hard against Crypto?

“The U.S. Commodity Futures Trading Commission (CFTC) should take the same regulatory approach to the Crypto market as it does to other emerging asset classes and strengthen its oversight.”

That’s the view of Commissioner Caroline D. Pham, who told a Cato Institute conference on Thursday that “responsible innovation” and “compliant” digital asset markets are needed.

CFTC commissioner urges tighter controls on innovation

Pham’s comments hint at the chaos the current Crypto market is in. Pham advocates for dialogue with the industry, but she was vague about how much say Crypto companies should have.

In her speech to clean up the “unruly” Crypto industry, Pham shared her extensive experience as a sponsor of the CFTC’s Global Markets Advisory Committee. She recounted an international trip that brought her into contact with many regulators, finance ministries, and central banks.

In Pham’s view, policymakers in other jurisdictions have demonstrated a high degree of consistency in promoting economic growth in a responsible manner. Pham contrasts this strong approach with what she sees as the United States’ tendency to “rest on its laurels,” which she believes is particularly pronounced in the blockchain and digital asset sectors.

The United States has adopted a “wait-and-see” approach to potential opportunities in blockchain technology and digital assets, which is a far cry from the proactive measures needed for this rapidly evolving industry.

According to Pham, the Crypto industry also lacks “regulatory clarity” and “robust guardrails” when it comes to regulation.

That’s why Pham has repeatedly called on the CFTC to take a tougher stance on the crypto industry, much like the Gary Gensler-led U.S. Securities and Exchange Commission (SEC), which has effectively declared war on the industry.

Gensler reached new levels of vitriol in a July interview with Bloomberg, calling the crypto space “rife with fraud, rife with scammers,” and calling for “more police on patrol.”

Pham praises pilot program's achievements

In Pham’s view, pilot programs have been very useful to regulators in the past. For example, in 1995, the CFTC launched a three-year pilot program whose goal was to test innovative trading methods and products.

In the 1995 plan, regulators set trading rules as well as registration, reporting and risk disclosure requirements.

Following this successful trial, another pilot program was launched in April 1998. This new pilot program considered allowing the purchase and sale of agricultural trading options on some commodities. It also tested a series of new requirements for parties who wanted to enjoy greater flexibility in their daily operations.

Then, in June 2010, the CFTC tested another set of rules in response to the May 6, 2010 “flash crash” in U.S. stocks. Here, U.S. exchanges provided help.

Based on their experience, they proposed changes to the rules for trading halts, which are triggered if a stock's price jumps 10% or more in five minutes.

The 2010 pilot program worked so well that the CFTC quickly codified the rules into law. Pham believes that market participants and regulators alike are confident that the new requirements are justified and will work in practice.

Next Step for Pham: Crypto Pilot Project

Pham is an active advocate for pilot programs based on previous good results. She believes that the next logical step is for the CFTC to conduct a pilot in the digital asset space.

“We have a responsibility to proactively meet new challenges rather than passively observe them,” Pham said. “That is why I am recommending that the CFTC implement a time-limited pilot program to support the development of compliant digital asset markets and tokenization.”

In theory, such a project would proceed on a fairly similar basis to those in the past, and it would call on market participants to share their ideas. Pham also said that it should be up to the CFTC, not Crypto exchanges and companies, to propose and formulate new rules for the industry.

Curiously, her proposal is silent on one key issue.

That is, how much real input do market participants have, and do their opinions and ideas ultimately matter? Or can the CFTC, as the ultimate decision-maker, dictate whatever rules it wants to impose on exchanges and companies?

However, Pham did not answer these questions. Although she called for a "compliant" digital asset market, some may wonder how much Pham and the CFTC really value the opinions of exchanges and companies.