Better Markets Challenges CFTC Role in Retail Crypto Oversight

Better Markets has challenged the Commodity Futures Trading Commission’s ability to oversee retail crypto transactions, arguing that investors could receive fewer safeguards than they would under Securities and Exchange Commission oversight.

The CFTC requested public comment Monday on a possible framework for retail crypto transactions that use margin, leverage or borrowed funds. The agency is considering rules under its existing authority.

The proposal also includes a possible federal category for crypto trading platforms that meet specific requirements. Qualifying platforms would come under direct CFTC oversight.

Benjamin Schiffrin, director of securities policy at Better Markets, argued that the CFTC’s mandate differs from the SEC’s investor-protection role. He noted that the CFTC has traditionally regulated commodity and derivatives markets with greater participation from institutional investors.

“Unlike the SEC, the CFTC lacks an investor protection mandate,” Schiffrin said. “Because the CFTC’s rules lack the protections that apply when investors trade securities regulated by the SEC, the CFTC is the wrong agency to regulate transactions involving crypto assets by retail customers.”

Better Markets also questioned whether Congress intended the CFTC to become the main regulator for retail crypto transactions. Schiffrin pointed to the legal authority cited by the agency, saying it was originally enacted to address fraud in leveraged precious-metals trading.

The group raised concerns about provisions that could allow affiliations between market participants. Better Markets linked similar relationships to the collapse of crypto exchange FTX, which failed after customer funds became connected to activities involving affiliated entities.

Schiffrin also criticized CFTC Chair Mike Selig’s stated goal of making the United States the “crypto capital of the world.” He questioned the benefit of that goal and argued that crypto has not developed a practical use after years of investment. In his view, the sector is used mainly for speculation or criminal activity.

Nate Geraci, president of NovaDius Wealth Management, rejected that characterization. He argued that crypto companies are seeking clear rules and that the CFTC and SEC may need to provide guidance if Congress does not pass new legislation.

The agencies have continued developing crypto policy under existing law after the CLARITY Act stalled in Congress. The SEC has proposed easing some custody requirements for investment advisers, permitted limited trading of tokenized US stocks and issued guidance on the application of securities laws to crypto assets.

The CFTC’s request could lead to rules for retail crypto products that use leverage or borrowed funds. These products can increase both potential gains and losses for customers, making the division of authority between the CFTC and SEC a central issue in the regulatory debate.