​“The only commodity.” CFTC chair explains the peculiarities of bitcoin regulation

After this month’s collapse of FTX, Behnam’s CFTC has faced criticism for its ties to the exchange and founder Sam Bankman-Fried, who estimated that his firm spent “tens of thousands” of hours speaking with the commission about a controversial proposal to allow users to make trades with money borrowed directly through FTX, rather than a broker.

The CFTC also was poised to receive increased funding and oversight capacity through proposed Senate legislation, championed by Bankman-Fried, called the Digital Commodities Consumer Protection Act (DCCPA), which Behnam in September described as a “huge step forward.”

Behnam’s remarks on Wednesday came at Princeton’s new DeCenter, a blockchain-focused institute funded by crypto titans and Princeton alumni, including Joseph Lubin, Michael Novogratz, Peter Briger Jr., and Daniel Morehead, who all were in attendance.

Bankman-Fried was the scheduled keynote speaker, but that time slot was filled instead with a panel titled “The Demise of FTX and Other Crypto Entities: Lessons Learned.”

Behnam defended his commission’s actions, citing limited resources and calling on lawmakers and policymakers to move as quickly as possible.

“We don’t have the luxury of waiting,” he added.

Created in 1922, the CFTC recently has emerged as one of the main U.S. regulators of crypto markets, bringing over 60 enforcement cases since 2014, including recent action against the Ooki DAO, which drew scrutiny from the industry for its novel approach to regulating decentralized organizations.

Behnam said his commission has limited capacity for enforcement action because it lacks direct oversight, which is one of the aims of possible legislation, as well as the unique nature of the crypto market.

“It’s unlike any commodity we have dealt with,” Behnam said, citing crypto’s prevailing behavior as a speculative retail market.

In the vacuum created by the lack of regulation, one of the central debates has been whether different cryptocurrencies should be classified as commodities or securities, with the latter under the remit of the U.S. Securities and Exchange Commission.

Behnam said that the only cryptocurrency that should be viewed as a commodity is Bitcoin, walking back from previous remarks made in October when he suggested Ether may also be a commodity.

Behnam called the matrix of regulators an “imperfect system,” but praised collaboration between agencies.

Despite the flare-up over the Ooki DAO case, the crypto industry largely views the CFTC as a friendlier regulator than the SEC—a reputation that Behnam has sought to dispel.

The commission’s perceived ties to FTX drove this reputation, including the company’s proposal over customer trades, which it withdrew earlier this month. The Washington Post reported that Behnam touted the proposal’s potential to interested groups, although he recently said that the CFTC was never close to a decision.

During his remarks at Princeton, Behnam did not address the CFTC’s relationship with FTX, instead citing the need for regulation across different sectors of the crypto industry, from stablecoins to lenders, to prevent similar crises. He highlighted the involvement of retail investors and lack of use cases in crypto beyond speculation, questioning the utility of lending institutions such as BlockFi, which filed for bankruptcy earlier this week.

With FTX and Bankman-Fried mired in bankruptcy proceedings and government investigations, the fate of the DCCPA is in flux. At an event earlier this month, SEC Chairman Gary Gensler alluded to the bill’s ties to FTX, describing it as “too light-touch.”

Behnam took a softer stance, saying that any legislation had to balance innovation and regulation. Even so, amid the room full of academics and entrepreneurs, Behnam said that as a market regulator, the CFTC cannot sit back and wait for the technology to develop.

“Inaction is paralysis,” he told the audience.

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