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CFTC makes controversial crypto decision

Technology for Lawyers

Published: January 26, 2024

The Lever is reporting on a Dec. 13 Commodity Futures Trading Commission (CFTC) decision that is another shot in the war between that small agency and the SEC over who can control the regulation (and therefore the future) of cryptocurrency.
The Lever is calling this “SBF’s Victory From Behind Bars,” and it’s a pretty complicated story.
In late December, a majority of the CFTC’s five-person board allowed a small cryptocurrency firm, the Chicago-based startup Binomial, to vertically integrate as a cryptocurrency exchange, broker and clearinghouse—something that would be unheard of in a business overseen by the SEC.
The 5-1 decision came after years (and millions of dollars) in lobbying (cozying up to) regulators by cryptocurrency trading platforms like Sam Bankman-Fried’s now-bankrupt FTX.
Various commentators, including regulators, experts and the board member who voted “no” say that the move could “endanger customer assets and stifle competition, as well as set a dangerous precedent that could set up this and other financial markets for spectacular collapse.”
You know, just like FTX.
As a reminder, no company regulated by the SEC (like a stock brokerage, for instance) is allowed the kind of vertical integration that the CFTC just granted to Binomial.
In most financial markets different entities run the different parts of the overall market to prevent conflicts of interest, illegal trades, etc.
As a by-product or trade-off, more people get into the money flow that way. But if you want to completely control a market, it’s much more difficult when all of the trade functions are broken up.
For its part, Binomial said that did not intentionally create a vertical integration and that it doesn’t intend to behave like it has one. Right.
The decision comes in the middle of governmental discussions on the regulation of cryptocurrency, leading Christe Goldsmith Romero, the one CTFC commish who voted “no,” to state in a Dec. 13 press release: “We are in the middle of a public consultation on vertical integration and concerns with vertical integration have been expressed by the White House… Treasury Secretary Janet Yellen and other banking regulators.
“I do not understand why the Commission would rush to register this small start-up company, thereby setting precedent, without completing the analysis that we are in the middle of right now.”