Biting Off More Than It Can Chew: Senator Doubts CFTC Can Oversee Digital Commodities

The head of the U.S. Commodity Futures Trading Commission (CFTC) was grilled by a lawmaker Thursday over what the latter said were supposed concerns about the financial regulator's capability in overseeing the cryptocurrency sector.

Sen. Dick Durbin, D-Ill., said during Thursday's Senate Appropriations subcommittee hearing on budget that there is concern the CFTC is "biting off a hell of a lot more than they can chew" following the House passage of the proposed Financial Innovation and Technology for the 21^st Century Act (FIT21) that empowers the CFTC to regulate "digital commodities."

The proposed legislation also states that the U.S. Securities and Exchange Commission (SEC), which is a separate regulator that has been criticized by the crypto community over its alleged regulatory "overreach," will oversee "digital assets offered as part of an investment contract."

"What in the world makes you think that you can get into this fast-moving capacious world and be effective as a regulator?" Durbin asked Rostin Behnam. The CFTC chief said regulating commodities is his and the regulatory agency's "responsibility." He also said there is a "gap in regulation over non-security commodity tokens."

He went on to say that the CFTC has had a successful track record in the cryptocurrency space – 135 crypto cases in the last 10 years – and the regulatory agency has "policed a market where we don't have direct authority or jurisdiction." He also pointed out that the CFTC is "adequately equipped" to oversee financial markets it is "mandated to oversee."

Earlier in May, Behnam said he expects a new round of regulatory enforcement actions on the digital assets sector within the next two years. At the time, he said fraud and manipulation will continue to proliferate in the sector if a regulatory framework isn't established.

Before Durbin's grilling of Behnam, Sen. Bill Hagerty, R-Ill., asked both Behnam and SEC Chair Gary Gensler whether Ether (ETH), the native cryptocurrency of the Ethereum blockchain, is a commodity. Behnam said "yes" without hesitation, while Gensler refused to directly answer the question.

This isn't the first time the CFTC's leader was questioned by senators. In an April letter to the regulator, Sen. Elizabeth Warren, D-Mass., and Sen. Chris Grassley, R-Iowa, requested accounting documents of "all meetings and correspondence" between Behnam and fraud convict Sam Bankman-Fried, the former CEO of collapsed crypto exchange giant FTX. They said it was necessary to determine how FTX's and Bankman-Fried's crimes were "allowed to happen."

Senators have yet to vote on FIT21, a bill that some House members have said should establish a regulatory framework for the fast-evolving crypto industry.