Representatives in Washington want the Commodity Futures Trading Commission (CFTC) to regulate crypto, but there are questions about whether the agency is up to the task.
Last week, US Congressman French Hill released the first draft of the Clarity Act, a bill that would create a new category of asset, the “digital commodity.” It would allow qualified assets to trade relatively freely on the secondary market. It would also give the CFTC most of the authority to regulate cryptocurrency.
The CFTC is empowered and governed by the Commodities Exchange Act (CEA), a sprawling law periodically modified by new legislation to amend and modernize it. Like the Securities and Exchange Commission and many other federal commissions, the CFTC comprises five commissioners, each of whom must be confirmed by the Senate.
Currently, one of these chairs sits empty, with other commissioners set to leave the agency in the near future. This could hamper the CFTC’s ability to effectively regulate the crypto industry should the Clarity Act pass.
CFTC’s ability to act on crypto limited as nomination stalls
By convention, when a presidential administration changes, and particularly when the administration changes parties, the CFTC chair resigns to allow the president to appoint a new chair. Notably, the CEA prescribes that no more than three may be of the same political party.
When Donald Trump took office in January 2025, the former Democratic Chair Rostin Behnam resigned his seat. After some time considering candidates to replace former Chair Benham, Trump nominated a replacement in February: Brian Quintenz, former commissioner, a16z Crypto head of policy, and Kalshi board member.
Then nothing happened. For months, Quintenz’s nomination sat languishing and unconsidered. This is not uncommon, as the Senate may be occupied with other high-priority legislation like Trump’s budget bill and the GENIUS Stablecoin Act.
This means that, since Benham left in January, the commission has been deadlocked with two Democratic and two Republican commissioners. This doesn’t mean that the business of the CFTC has been stopped; some of the functions of so-called independent agencies sit within the office of the chair, and Caroline Pham has been acting chair since Trump’s accession.
But some functions do not. These include issuing or amending regulations, policy statements, exemptions or no-action criteria. All of these require a majority vote of the commissioners, which, to the extent such regulations are controversial, will be impossible in an evenly divided CFTC. Enforcement is also limited, as the Enforcement Division requires “approval of a majority of the Commission” to pursue new actions.
Related: US regulator moves to drop appeal against Kalshi
So far, the crypto industry has been fine with this. One of the most significant complaints the industry had with former President Joe Biden’s administration was that it engaged in “regulation by enforcement.” By ceasing to pursue an enforcement or regulatory agenda at all, the CFTC has remedied the problem.
The most notable example has been the prediction market industry. Legal prediction markets are administered as “event contracts” under the Commodity Exchange Act. Historically, the CFTC has prohibited these contracts from involving highly salient categories like elections, awards shows and sports, but in late 2024, the prediction market platform Kalshi won a landmark legal battle with the then-Benham-led CFTC to permit election markets.
After Trump won the 2024 election, the space continued to evolve as aggressive entrants pushed boundaries. Crypto.com self-certified its own prediction markets for the Super Bowl in December, and the Biden CFTC moved to block it. After Trump took office, however, the new CFTC tacitly allowed the markets to proceed, effectively creating a new market for federally regulated sports betting through inaction.
In some cases, Democratic commissioners may choose to cooperate with the Republicans, as was the case when Democrat Christy Goldsmith Romero voted to dismiss the CFTC’s appeal of Kalshi’s 2024 election prediction market victory.
However, to the extent there is real disagreement, the commission cannot act. And this problem may become acute in the near future.
Other CFTC commissioners are stepping down
Quintenz’s nomination hearing before the Senate Agriculture, Nutrition, and Forestry Committee is scheduled for June 10, but just as he is coming through the doors, others are exiting.
Last week, two of the remaining four CFTC commissioners, Republican Summer Mersinger and Democrat Goldsmith Romero, departed the commission. While this doesn’t change the deadlocked math of the commission, it does suggest that gridlock may be harder to break. This is because remaining Republican Commissioner Pham has also stated that she will leave if and when Quintenz is sworn in.
Moreover, there appears to be no plan to remedy this lack of capacity. No other commissioners have been announced, and no reporting has suggested that there is even a list under consideration.
Perhaps the Trump administration is taking the long view since remaining Democrat Commissioner Kristin Johnson has also announced her departure, albeit without a deadline (her term continues until 2027). Assuming they can get Quintenz in, they may simply be able to wait out Johnson and retain in him singular control over the ostensible five-person commission.
This would be strictly legal, as Section 2(a)(3) of the CEA states that “a vacancy in the Commission shall not impair the right of the remaining Commissioners to exercise all the powers of the Commission.”
But does its legality mean it is a good idea?
Betting industry delays were a warning sign
On Feb. 5, the CFTC announced a roundtable “in approximately 45 days” to discuss sports betting on federally registered prediction markets. The CFTC would listen to comments for a few months and then bring everyone together and let them talk.
This turned out to be sorely needed, as shortly thereafter, a maelstrom descended on the industry, as Nevada, New Jersey, Maryland and a number of other states pursued the federally registered prediction market Kalshi in federal court.
Related: Kalshi sues Nevada and New Jersey gaming regulators
As these cases percolated, it became clear that the choice to allow these new markets would ultimately rest with the CFTC. And yet, as industry observers turned their eyes to the commission, no decision came down.
Members of the gambling industry who were intently waiting for the announced roundtable waited as the 45-day time limit counted down. Behind the scenes, the CFTC set the date for April 30, but publicly, the agency said nothing more on the matter until a week before the event, when they cancelled it.
For those seeking to designate the CFTC as the central regulator of the entire cryptocurrency industry, this should have been a canary-in-the-coal-mine moment. An entire industry — federally regulated sports betting — was waiting on one regulatory body to weigh in, and in its moment of need, nothing happened.
It’s not an indictment of the CFTC, but it may reflect a lack of capacity. The agency was abruptly thrust into the spotlight at a moment when its commissioners were already planning their exits and the administration’s plans for its future were far from clear.
Maybe Quintenz will solve this problem, but can the cryptocurrency industry really bet its whole future on it?
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