The incoming Trump administration is reportedly planning to grant the Commodity Futures Trading Commission (CFTC) greater regulatory control over Bitcoin (BTC) and Ethereum (ETH) spot markets, potentially reducing the Securities and Exchange Commission’s (SEC) role. This move aims to clarify regulatory responsibilities and reduce enforcement-driven approaches, fostering a more innovation-friendly environment in the United States crypto market.

CFTC: The Preferred Crypto Regulator

Under the proposed plan, the CFTC would gain jurisdiction over Bitcoin and Ethereum, both of which account for roughly 70% of the global cryptocurrency market, with a combined market value of approximately $2.24 trillion. The CFTC, known for its traditionally lighter regulatory touch in commodities markets, could offer a more favorable environment for the crypto sector compared to the SEC’s aggressive enforcement strategy under the leadership of Gary Gensler.

Christopher Giancarlo, former CFTC Chair and a strong advocate for crypto regulation, has voiced support for expanding the CFTC’s role. Known as “Crypto Dad” for his pro-crypto stance, Giancarlo believes that with proper funding and leadership, the CFTC could regulate digital commodities effectively from day one of Trump’s presidency.

Addressing Regulatory Uncertainty

The SEC and CFTC have long disagreed over the classification of digital assets, leading to regulatory confusion that has hindered the growth of the U.S. crypto market. While the SEC typically views most cryptocurrencies as securities, the CFTC has classified Bitcoin and Ethereum as commodities. This inconsistency has driven many crypto firms to seek friendlier jurisdictions, creating a fragmented regulatory landscape.

By assigning the CFTC jurisdiction over Bitcoin and Ethereum, the Trump administration hopes to resolve this conflict and bring clarity to crypto market participants. The CFTC has already shown interest in a broader role, with CFTC Chair Rostin Behnam asserting the agency’s authority over Ethereum, particularly in its futures contracts.

Bridging the Gap: The BRIDGE Digital Assets Act

In addition to empowering the CFTC, a bipartisan initiative called the BRIDGE Digital Assets Act has been proposed to establish a cooperative framework between the SEC and CFTC. The bill, supported by Congressman John Rose of Tennessee, aims to create a joint advisory committee composed of private sector representatives. This committee would focus on harmonizing regulatory policies, addressing conflicts, and promoting collaboration between the two agencies.

The bill highlights the need for a more balanced regulatory approach, noting that the current “regulation-by-enforcement” model is driving investment overseas. A cooperative framework would resolve key disputes, such as the SEC’s classification of all Proof-of-Stake (PoS) tokens as securities, which contradicts the CFTC’s stance on Ethereum as a commodity. A unified regulatory approach would provide much-needed clarity and guidance for the crypto industry.

Industry Reaction and Potential Challenges

The crypto community has largely welcomed the prospect of CFTC-led regulation, as the agency is seen as more accommodating compared to the SEC. Critics argue that the SEC’s more stringent approach has stifled innovation and driven crypto businesses abroad. The CFTC’s reputation for lighter touch regulation, particularly in derivatives markets, is seen as better suited to support the growth of the U.S. crypto sector.

However, the CFTC’s smaller budget and workforce may pose significant challenges. With an annual budget of just $400 million and a staff of 700, the CFTC lacks the resources of the SEC, which operates with a budget of $2.4 billion and 5,300 employees. If the CFTC were to oversee the crypto spot markets, it would need increased funding and resources to handle the expanded responsibilities effectively.

Additionally, some traditional stakeholders within the CFTC, such as agricultural commodity traders, have expressed concerns about the impact of expanding the agency’s role into digital markets. Addressing these concerns will be crucial to ensuring bipartisan support for the regulatory shift.

Conclusion

President-elect Trump’s plan to shift regulatory authority for Bitcoin and Ethereum to the CFTC reflects a broader desire to foster innovation while addressing regulatory uncertainty in the U.S. crypto market. While the proposal is welcomed by the crypto industry, challenges remain regarding the CFTC’s ability to manage these responsibilities effectively, given its limited resources. Nevertheless, the potential for a more harmonized and supportive regulatory environment could pave the way for greater U.S. leadership in the global cryptocurrency space.