House Agriculture Committee
Hearing entitled: For the Purpose of Receiving Testimony from The Honorable Rostin Behnam, Chairman, Commodity Futures Trading Commission
On March 6, 2024, the House Committee on Agriculture received testimony from the Honorable Rostin Benham, the Chairman of the Commodity Futures Trading Commission (CFTC). Chairman Benham was the hearing’s sole witness and his testimony focused on the agenda and work of the Commission and its priorities regarding both agricultural commodities, and the need for a digital asset regulatory framework to protect and incentivize investment and the retainment of business in the US. The Committee also asked Chair Benham about artificial intelligence and quantum computing’s current and potential growth and influence in commodities trading.
Unsurprisingly, digital assets were a key focus. The hearing comes at a time where cryptocurrency has majorly reentered the public eye due to its recent price resurgence. We have provided a summary below. If you have any questions, please reach out to Mack LaBar at Mackenzie@digitalchamber.org.
Overall Takeaway:
There was consensus that digital assets have arrived as a major industry that needs regulatory clarity. There was broad support from members, and even Chairman Benham, for the Financial Innovation and Technology (FIT) for the 21st Century Act (“market structure” bill), led by Committee Chair GT Thompson (R-PA). Benham said the CFTC could implement a regulatory framework if directed by the FIT Act within 12 months and that it was a critical bill for hiring talent, building software, hardware, as well as infrastructure. “Crypto going away is a false narrative,” said Benham.
There was substantial focus as well on digital asset categorization and whether cryptocurrencies, specifically Ethereum, should be identified as a commodity. Benham was adamant that Ethereum is a commodity and stated that in the case of the SEC validating a ruling that stated digital assets were either securities or commodities, the CFTC would be involved in ensuring that the steps taken were deliberate, and that a focus was put on preserving market compliance and integrity.
Summary:
In his opening statement, Chairman Benham pleaded for more regulatory authority over digital assets, highlighting that in FY2023 the CFTC saw 47 actions relating to conduct in the digital assets space, which represented 49% of all Commission enforcement actions… “a staggering statistic considering no federal agency directly regulates the cash digital commodities market,” said Chairman Benham.
The Chairman continuously advocated for the “filling of gaps” in the crypto and digital assets space, which not only include compliance but also the movement of business overseas to countries in Europe and Asia. The Chairman stated that the regulatory environment in such countries over the course of the three years that he has been CFTC chair, has improved drastically. He also advocated for the identification of digital assets as commodities, an important debate that would distinguish the authorize of both the SEC and the CFTC in the crypto space.
Rep. Duarte (R-CA) pushed back against this movement and voiced his opposition to “shoehorning” crypto into either the commodities or securities box and questioned the technology’s legitimacy as a true store of value that investors could observe and trust. Chairman Benham asserted that the question of legitimacy was irrelevant and that regardless of the technologies legitimacy, it is a rapidly evolving market and space where investors stand to lose money and potentially face malpractice within the industry, requiring regulation. Benham went on to state that commodities — even after acknowledging that there are enumerated commodities such as corn, wheat, gold, silver, and fuel — are often assets that are simply “not a security” which could be assessed through a Howie Test, a test that assesses whether or not a transaction is an investment and should be regulated.
Rep. Langworthy (R-NY) asked about the trend of “disintermediated” crypto transactions and whether this trend should be something the CFTC should be investigating and considering regulation for. Chair Benham commented that these platforms that effectively remove the brokerage stage of asset acquisition offer certain advantages to investors such as removing “frictional barriers” but also acknowledged that these barriers that have been in place in traditional stock purchasing for decades, have acted as barriers to malpractice and security risks, and act as protections for market integrity.
Both Rep. Budzinski (D-IL) and Rep. Soto (D-FL) asked about the FIT Act regarding the importance of passing it, and the timetable for implementing a regulatory structure under the law, were it passed with substantial funding.
As stated, Benham is supportive of the bill highlighting its necessity because Bitcoin and Ethereum make up 60% to 70% of the whole market capitalization of digital assets and the CFTC needs delegated authority to regulate. Rep. Casar (D-TX) was a lone exception that lamented legislative efforts should be deprioritized in favor of more research on the appropriate regulatory authority for digital assets and marketplaces.