Single Market? A Simple Market Is the Key to US Markets’ Success

By the Honorable Caroline D. Pham, Acting Chairman, U.S. Commodity Futures Trading Commission

The United States must avoid the pitfalls of creating a “Dodd-Frank Act for crypto” that will be too expensive and too complex to unleash innovation.

The lack of US regulatory clarity for crypto-assets (digital assets) has led some Americans to fear that innovators and entrepreneurs have abandoned the United States in search of more regulation and have found new homes in the European Union (EU)—as well as Singapore and the United Arab Emirates (UAE). The US regulatory allergic reactions to new technologies, such as blockchain, over the past several years may have led to a new European tech export: the EU’s Markets in Crypto-Assets Regulation (MiCA). As the tongue-in-cheek saying goes, “Americans innovate, and Europeans regulate.”

In a reversal from the normal state of affairs, frustrated American innovators have reached the surprising conclusion that the US must emulate the EU and implement its own version of the MiCA, a regulatory regime that is purpose-built around a specific technology and layers on extensive new registration and compliance requirements for Virtual Asset Service Providers (VASPs) by each EU member country’s regulator—in addition to the parallel Markets in Financial Instruments Regulation (MiFIR).

However, a US version of the MiCA is not the solution. Americans should not create a brand-new US regulatory regime for digital assets. Instead, we would do well to remember that the key to the success of US markets is simplicity. That is why I propose a simple approach to US spot crypto regulation under the Commodity Futures Trading Commission’s (CFTC’s) existing regulatory framework.

As is now openly acknowledged by the European Union, the United Kingdom and the United States, overly burdensome regulation stifles innovation and competition and creates a drag on economic growth.

I should know. I implemented the Dodd-Frank Act (Dodd-Frank Wall Street Reform and Consumer Protection Act) regulation of over-the-counter (OTC) derivatives. Ongoing compliance with Dodd-Frank costs billions of dollars each year and involves thousands of compliance personnel across the banking and financial-services sector because of its heavy-handed approach to registration and compliance requirements and regulatory overreach.

The crypto industry should learn from the cautionary tale of punishing and excessive regulatory costs for banks and avoid creating a “Dodd-Frank for crypto” act that will take many years to enact and implement and cost billions in unnecessarily complex registration and compliance requirements.

Consider what is at stake if we Americans get it wrong. The estimated total spot crypto market capitalization is reportedly more than $3 trillion. We live in an age of technological transformation—an era of human invention and productivity that is characterized by increasingly direct connections among ordinary people and the empowerment of the individual with a mobile application as the center of the overall digital economy. Many propose blockchain technology—a new Web3—to be the foundation of this new prosperity.

My simple approach is the fastest way to ensure that the US is no longer left behind when it comes to promoting innovation and welcoming American entrepreneurs and companies to come back home. This is how we ensure US competitiveness and that the US leads the way in harnessing the potential of this new technology to create economic opportunities for all Americans. This is how the US becomes the crypto capital of the world.

A simple approach to CFTC regulation of spot crypto markets in 12 to 18 months

As acting chairman of the CFTC, the debate over US regulation of spot crypto markets, decentralized finance (DeFi) and blockchain technology is a high priority for me because most crypto-assets are commodities that fall under the CFTC’s broad and global jurisdiction. I propose a simple approach to CFTC regulation of spot crypto markets—such as bitcoin, ether, utility tokens, meme-coins and other digital assets—under the CFTC’s existing statutory authority as per the Commodity Exchange Act (CEA).

The entire regulatory framework can be implemented in 12 to 18 months and adheres to my 2022 proposal for 10 fundamentals for responsible digital-assets markets. My views are based on more than 10 years of extensive regulatory and business experience in crypto and digital assets, including as head of market structure on the team that led Citi’s digital-assets growth strategy globally across institutional and consumer businesses.

For the most part, US laws and regulations are technology-neutral and activity-based, providing a more flexible and adaptive regulatory structure that promotes innovation and competition.

The benefits of the US approach are clear: Technology-neutral regulations do not have to be continually rewritten to keep up with innovation, and activity-based regulations do not require burdensome and costly entity-registration requirements that stifle competition by raising the gate to new entrants with less capital (namely, start-ups and entrepreneurs). Another benefit is that regulatory clarity can be provided relatively quickly through agency interpretations rather than engaging in years-long efforts to enact new legislations or promulgate new regulations.

Crypto brokers and dealers

First, most spot crypto activity in the US involves either a crypto broker that is facilitating a trade with another person (agency) or a crypto dealer that is the counterparty to the trade (principal). The CFTC already has existing jurisdiction over technology-neutral retail activities involving spot foreign exchange (FX) transactions. Given the similarities between crypto market structure and FX market structure, as well as the similar risks to retail participants, the CFTC should simply use its exemptive authority to extend the current registration and compliance requirements for retail FX to include spot crypto, as I first proposed in 2022.

Current registrants, such as futures commission merchants (FCMs) that facilitate retail FX and retail foreign exchange dealers (RFEDs), could immediately begin transacting in spot crypto without needing to engage in a costly and lengthy process to obtain a new registration. All existing protections—such as segregation of customer funds and requirements regarding conflicts of interest, financial resources, disclosures, reporting, and deceptive or abusive marketing and sales practices—would also immediately apply.

Either an FCM or an RFED could be an operator that maintains a “front-end” user interface or portal without needing any additional registrations, similar to operating an alternative trading system or single-dealer platform. Blockchain technology would not be the target of regulation, so this simple approach works for DeFi because it is the trading activity that is regulated, not the decentralized protocol that is akin to software.

Crypto exchanges

Second, for a true spot crypto exchange that offers a central limit order book (CLOB) and anonymous matching and execution, the CFTC could again leverage the existing regulations for designated contract markets (DCMs or futures exchanges) that currently apply to listed crypto futures and options. The simple approach would be to use the CFTC’s exemptive authority again to permit a DCM to list spot crypto, including crypto that is leveraged, margined or financed. DCMs could then immediately list non-security crypto tokens without needing any additional registrations, and the existing safeguards and protections would also immediately apply.

Is it a security or a commodity?

Finally, to provide regulatory certainty for certain crypto-assets, such as utility tokens, the CFTC and the U.S. Securities and Exchange Commission (SEC) could provide a joint exemptive order or guidance to set forth criteria to determine that a utility token is not a security. Last fall, the Utility Tokens workstream of the Digital Asset Markets Subcommittee of the CFTC’s Global Markets Advisory Committee (GMAC), which I sponsor, presented work-in-progress on such utility-tokens guidance. The GMAC also proposed the first-ever US digital-assets taxonomy. Since 2022, I have proposed that the inactive joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues be reinstated to address crypto-asset jurisdictional issues. As the CFTC’s acting chairman, I have now initiated that process together with the SEC.

Regarding stablecoins as collateral or settlement instruments, I have announced a CFTC pilot program, as I first proposed in 2023, to explore tokenization and non-cash collateral based on the CFTC’s GMAC recommendation published in November 2024.

Of course, there are significant risks of fraud, manipulation and abuse in retail markets. The CFTC must continue to use its enforcement authority aggressively to protect the public from scammers and other bad actors in spot crypto markets, as it has done since 2015.

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Last year, I had the pleasure of attending an event in Brussels to honor former Prime Minister Enrico Letta of Italy and welcome his report “Much More Than a Market”, reflecting on the future of the European single market. The Letta report was followed by the Draghi (former Italian Prime Minister Mario Draghi) report “The Future of European Competitiveness”, which included proposals to close the innovation gap with the United States and China. Both reports set forth bold visions to ensure European prosperity and economic security.

It is, therefore, not surprising that as an American who is fortunate to regulate the deepest and most liquid markets in the world, much of my international engagement focuses on this question: How does the US regulatory structure enable thriving public and private capital markets that power the innovation and competition that underpins the largest economy in the world? The best and brightest from all over the world come to the US to pursue the American Dream, and many jurisdictions seek to unlock the secret of US markets’ success.

The answer is that a simple market is the key to the success of US markets. Let’s stay uniquely American and not import the MiCA to the US when our own existing laws and regulations will work faster, stronger and better for US markets.