Dive Brief:

• Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam urged lawmakers at a hearing Wednesday to grant the agency an expanded role in regulating the cryptocurrency market, and give the regulator an extra $100 million to do so. 
• "There is no one regulator, either state or federal, with sufficient visibility into digital asset commodity trading activity to fully police conflicts of interest and deceptive trading practices that impact retail investors," Benham told the Senate Agriculture Committee on Wednesday. 
• Top Democrats and Republicans on the panel sent Behnam a letter last month inquiring whether the CFTC should be given more authority in watching over the crypto market.

Dive Insight:

The CFTC is calling on lawmakers to empower the agency to police the cash market for digital assets, in addition to its traditional role overseeing the U.S. derivatives market. 

The rapid innovation taking place in the crypto sphere "impacts more than just financial markets," Behnam said. "We are seeing several government agencies consider how this technology impacts federal policy related to payments, custody, illicit activity, national security and a host of other issues."

The role of the CFTC in regulating the cryptocurrency market is limited to governing derivatives such as Bitcoin futures. Behnam argued that by granting the CFTC heightened legal authority to regulate crypto and an additional $100 million in its budget, lawmakers would address a regulatory blind spot that poses a threat to U.S. investors.

The Securities and Exchange Commission (SEC) has also staked a claim in crypto regulation, allegedly threatening legal action against some companies that offer interest-bearing lending products that the agency sees as securities.

A handful of crypto firms late last year — notably, Coinbase and Ripple — laid out their wish lists for regulatory supervision. Ripple, for one, favored the CFTC over the SEC. Coinbase sought a new regulator altogether.

The CFTC is "relying on retail customers who are defrauded through Ponzi schemes or pump-and-dump schemes to bring information to us," Behnam said at the hearing. 

"We don't have the regular tools that we, as a market regulator, have in terms of pre-trade transparency, post-trade transparency," he said. "A concentrated order book, surveillance tools, market intelligence — we don't have any of these very advanced tools to monitor the market."

Wednesday's hearing comes roughly a month after a bipartisan group of lawmakers on the Senate panel wrote Behnam, asking him to explain the benefits and risks posed by crypto, and the regulatory role he believed the agency should play in regulating the asset class.

Behnam published a response to the letter online. 

"In my opinion, there are important principles missing from the current regulatory framework applicable to digital asset markets that we see in other federally regulated markets, particularly ones that primarily cater to retail investors," Behnam wrote. "Despite historically focusing on the derivatives market, the CFTC is prepared and well suited to play an increasingly central role in overseeing the cash markets for digital assets."

Behnam began serving as the CFTC's full-time chief in September, though he had been the agency's acting chair since January 2021. 

He attracted attention for leading a CFTC subcommittee that published a report in 2020, suggesting the most efficient way to reduce the risk that climate change poses to financial markets would be to force businesses to pay for greenhouse gas emissions.

Behnam discussed the environmental implications of cryptocurrency adoption at Wednesday's hearing.

"Reports regarding energy usage resulting from mining are staggering, oftentimes being compared to that of entire countries," he said. "On this note, I believe any regulatory response to the digital assets must include measures to bring additional transparency to the conduct that makes this innovation possible. Internally, I have directed the CFTC climate-risk unit ... to examine the climate implications of digital assets."