ETFs Make Regulation More Important Than Ever Says CFTC Chair; Brown AML Bill Updates

CFTC: ETFs aren’t regulations

It may not have been under his commodities oversight purview, but Commodity Futures Trading Commission Chair Rostin Behnam (D) is concerned that the recent approval of Bitcoin spot market Exchange-Traded Funds (or Products) is unlocking unnecessary risk for market participants.

At an American Bar Association meeting on Friday, Behnam said in a speech (read it) : “I fear that the regulatory approval of bitcoin ETPs introduces risk that, in spite of yellow flags, market participants, retail and institutional alike, may mistake the technical approval of a product—with actual regulatory oversight of the cash commodity digital assets. The concerns I have publicly voiced for the better part of six years regarding the digital asset commodity spot market have only become magnified. The need for federal legislation over cash market digital assets has never been more critical, and I will continue my call for action.”

more tips:

BlackRock’s Bitcoin ETF First to Reach $2B in AUM – CoinDesk

what you should know: In Behnam’s mind, you can’t approve a product before you approve the regulation around the product. Meanwhile, Democratic leadership led by Securities and Exchanger Commission (SEC) Chair Gary Gensler is saying that the regulation exists already for digital assets – securities law – and all crypto tokens are securities. Behnam has clearly broken from the current Dem leadership point-of-view exhibited by his past support of DCCPA and his stated belief that some tokens are commodities including stablecoins.

blockchain’s big use case: AI

The public form is now available for the requests for comment on the use of AI (artificial intelligence) in CFTC-regulated markets. All comments are due by April 24 here.

“This request seeks comment on the definition of AI and its applications, including its use in trading, risk management, compliance, cybersecurity, recordkeeping, data processing and analytics, and customer interactions. The request also seeks comment on the risks of AI, including risks related to market manipulation and fraud, governance, explainability, data quality, concentration, bias, privacy and confidentiality and customer protection.” Read the release from last Thursday.

In a tweet thread, CFTC Chair Rostin Behnam said in part, “The [request-for-comment] complements the directives the Biden Administration established (see Oct. 30 E.O.) for the safe, secure and trustworthy development of artificial intelligence, and embodies good government.”

what you should know: Artificial intelligence is a future use case for the blockchain – maybe the biggest. “Is [XYZ] real or not?” The immutable, open blockchain will serve as a “trustless” fact check where there is no possible influence or conflict with reliance on people or institutions. Decentralization integrates with democracy. Read more from IBM or Turing or KPMG.

Brown AML bill machinations

His bill hasn’t been released yet, but Senate Banking Chair Sherrod Brown (D, OH) has given every indication to D.C. media that an all-new anti-money laundering (AML) bill for digital assets is on the way.

Politico’s Eleanor Mueller reviewed in a tweet thread on Friday that Senator Jack Reed (D, RI) hinted at Brown’s bill back in October – an expected conglomeration of Senator Elizabeth Warren’s (D, MA) Digital Asset Anti-Money Laundering Act, Senator Reed’s CANSEE Act and, maybe even, Senator Mark Warner’s (D, VA) Terrorism Financing Prevention Act. Mueller said back in October getting Senate Banking Ranking Member Tim Scott’s (R, SC) support for an AML bill was on Brown’s to-do list.

She continued on X that as of January 17, Brown didn’t “know yet whether his product will move as a package or as standalone bills.”

what you should know: Would Ranking Member Scott use this moment to horse trade for the stablecoin or digital asset market structure bills waiting in the House? Or will Brown’s unrevealed AML legislation be too draconian and not worth the squeeze? House Financial Services Chair Patrick McHenry (R, NC) will be reminding the Ranking Member about his Committee’s legislation. Separately, Scott is rumored to be a VP candidate for the presumptive Republican nominee for President, Donald Trump. How does the former President feel about a stablecoin or digital asset market structure bill? All we know right now is he doesn’t like CBDCs.

Dem crypto lobbyist

The Hill reported last Thursday that Crypto Council for Innovation (CCI) has hired Ryan Eagan as an associate director for government affairs and a former staff member under Senate Majority Leader Chuck Schumer (D, NY). Read more.

The new hire was originally announced on January 17 by CCI and noted that Eagan had “advised the senator on banking and housing policy.” Read the release.

FTX in the news

Feature: “Rashit Makhat was one of the biggest individual beneficiaries of what U.S. prosecutors called a ‘spending spree’ of money Bankman-Fried stole from FTX customers” – The Wall Street Journal

FTX Is Unloading Crypto to Raise Cash and Pay Back Customers – Bloomberg


House Financial Services (HFS) Subcommittee for Digital Assets, Financial Technology and Inclusion Chair French Hill (R, AR) and fellow HFS member Rep. Jim Himes (D, CT) will be participating in an event titled, “Fortifying the Crypto Future: U.S. National and Economic Security in the Virtual Realm.” The event is produced by the Foundation For Defense of Democracies (FDD) and begins at 3:15 p. ET today. Agenda and live webcast information is here.

The moderator for the Hill-Himes dicussion is Juan Zuarte, who is co-founder and chairman of FDD’s Center on Economic and Financial Power (CEFP). Duarte has worn many hats in government and the private sector including U.S. Treasury and in the White House under President George W. Bush. Also, “since 2014, he has served as an independent adviser to Coinbase, the largest virtual asset service provider in the United States.”

hear ye, hear ye

On Thursday, February 8, Senate Banking will hold a hearing to discuss the latest Financial Stability Oversight Council (FSOC) Annual Report with Treasury Secretary Janet Yellen. According to Punchbowl News’ Brendan Pedersen, proceedings begin at 9 a.m. at Dirksen Senate Office Building.

It was just two weeks ago that House Financial Services Digital Assets Subcommitee held a hearing titled, “Regulatory Whiplash: Examining the Impact of FSOC’s Ever-Changing Designation Framework on Innovation.”  The Republican majority led by Chair French Hill warned about FSOC “side stepping” Congress when it comes to “designations” for non-bank entities. Read more.

Senate Banking is also holding a hearing this Thursday entitled, “Examining Scams and Fraud in the Banking System and Their Impact on Consumers.” Witnesses will include Carla Sanchez-Adams of the National Consumer Law Center, John Breyault of the Telecommunications and Fraud, National Consumers League; and Frank Abagnale of Abagnale & Associates.” See the hearing page.

what you should know: Whether the digital assets topic make an appearance in the hearing this Thursday remains to be seen. But, Punchbowl’s Pedersen noted on X about Witness Abagnale: he’s a “‘security consultant’ who, yes, is the real life guy from the movie CATCH ME IF YOU CAN.”

still more tips

Opinion: “From ‘Never Trump’ to ‘Encore’” – J.W. Verrett, professor, George Mason Univesity, in The Wall Street Journal

“CFTC Staff Demand Action on Commissioner’s Behavior” – Capitol Account

a16z’s Chris Dixon, the philosopher king of crypto, makes a fresh case for blockchain. Is he too late? – Fortune (on Yahoo)

Nigerian exchanges face licensing hurdles as analysts urge Nigerian SEC guidelines overhaul – Cointelegraph