The Commodity Futures Trading Commission wants to give retail investors access to leveraged crypto trading under a new federal market structure, as Chair Michael Selig moves to fill the regulatory gap left by the stalled CLARITY Act.
The CTFC’s proposed framework would create a crypto asset market for platforms facilitating leveraged, financed, or margin trades. These platforms could allow retail investors to trade crypto on a margined, leveraged or financed basis—something they can’t currently do on existing spot exchanges.
The CLARITY Act would have required crypto assets to trade on CFTC-registered platforms. But the CTFC does not have the authority to impose that requirement without congressional approval. Under Selig’s plan, crypto exchanges could instead opt to operate under a single federal market-regulatory regime.
The CTFC would also establish proactive compliance safeguards designed to prevent fraudulent schemes before they occur. Selig’s approach is intended to anticipate failures like the collapse of FTX, rather than relying on enforcement after the fact.
Action Still Needed
Even if they come to fruition, the rules fall short of what the CLARITY Act sought to accomplish. And rules developed by the agency without congressional action could face legal challenges, potentially leaving the regulatory framework in limbo.
“It’ll help part of the market move forward, but it doesn’t finish the job that Congress left unfinished,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. “CFTC could give platforms a clearer path of registering and provide stronger protections to customers, but the CFTC doesn’t gain broad oversight or authority over spot trading, which was a central part to the CLARITY Act. This might fill some immediate gaps, but it doesn’t remove the need for legislation from Congress.”
The Turf War
The CLARITY Act stalled in the Senate in September, but Selig had already prepared for that possibility. A month earlier, he directed CFTC staff to determine how the agency could establish a market structure for crypto assets using its existing statutory authority.
The CTFC is also navigating an ongoing turf battle with the SEC. The SEC has not ceded authority over the spot market to the CFTC and has been pursuing its own parallel Project Crypto initiative.
“CFTC potentially has a more prominent role here, but they’re both trying to fill gaps that Congress left at the end of the day,” said Hugentobler. “CFTC will probably position itself on the crypto trading side, while SEC will be securities and transactions falling under security laws. The real question is how the combined efforts from both agencies fit together for the time being.”