Better Markets questions CFTC oversight of retail crypto transactions

The U.S. Commodity Futures Trading Commission (CFTC) opened for comment a proposal to cover certain retail crypto-asset transactions that are leveraged, financed, or subject to margin. Better Markets, a nonprofit organization dedicated to financial reform, questioned whether the agency is the right one to oversee these activities and warned that the framework could offer investors fewer protections than that of the Securities and Exchange Commission (SEC).

The initiative is being processed as an advance notice of proposed rulemaking. It therefore sets out a framework under consideration and requests public input; it is not a final rule, nor does it settle the legal questions it raises.

What the CFTC proposal covers

The agency is considering using powers already established in federal law to oversee crypto-asset transactions involving leverage, financing, or margin. It is also considering a registration category for platforms that facilitate these transactions, called crypto-asset markets. The CFTC opened a 60-day public comment period to gather views on its approach.

The scope described does not amount to general federal oversight of all cryptocurrency activity. The proposal targets certain retail transactions involving financing or leverage. Direct, or spot, trading falls outside this framework according to the available coverage, although the CFTC retains authority to act against fraud and manipulation in those markets. The initiative would not replace state money transmission rules either.

The debate is taking place while Congress has not passed comprehensive legislation on the structure of the crypto-asset market. In this context, the CFTC and the SEC have advanced measures within their existing authorities. The consultation will allow the agency to receive arguments on the scope and design of its proposal, but does not in itself resolve questions about the legal authority invoked.

Better Markets’ objections

Benjamin Schiffrin, Better Markets’ director of securities policy, argued that the CFTC is less focused than the SEC on protecting retail investors. According to Schiffrin, the CFTC’s mandate centers on commodity and derivatives markets, historically dominated by institutional participants, while SEC rules include safeguards applicable to securities trading.

Schiffrin also questioned whether the legal authority cited by the CFTC shows that Congress intended to make the agency the primary regulator of these retail crypto-asset transactions. He said that the provision was originally passed to address fraud in leveraged precious metals transactions. This is Better Markets’ interpretation, not an established judicial conclusion in the available information.

The organization also raised concerns about possible ties among market participants that, in its view, could reproduce risks associated with the collapse of FTX. The coverage does not detail what specific relationships the proposal would allow, nor does it establish that an equivalent situation will occur.

An open debate on protection and common rules

Better Markets’ criticism does not represent a sector-wide consensus. Nate Geraci, president of NovaDius Wealth Management, defended the need for clear rules and noted that, if Congress does not establish them, the CFTC and the SEC may have to move forward within their respective authorities.

For companies offering crypto products to U.S. customers, the distinction between leveraged transactions and spot trading is relevant: the proposal addresses the former, but does not create a complete federal regime for all market activity. The outcome will depend on the comments received and subsequent regulatory steps. Until a final rule is adopted, Better Markets’ criticism and the responses of other participants should be understood as positions within an ongoing consultation, not as obligations already in force or as a ruling on the legal validity of the approach.