Bitcoin ETFs are wrapped in ‘thin layer’ of indirect regulations — CFTC chair

CFTC chair Rostin Behnam declared that regulating the cash market for digital assets has "never been more critical," following the approval of spot Bitcoin ETFs.

The chair of the Commodities Futures and Trading Commission (CFTC), Rostin Behnam, believes there is a risk of investors misinterpreting the recent approval of spot Bitcoin exchange-traded funds (ETFs) as firm regulations in place for Bitcoin and other cryptocurrencies in general.

In a keynote speech on Jan. 26, Behnam clarified there is a potential for investors to misunderstand the legal certainty for spot Bitcoin ETFs, following the United States Securities and Exchange Commission’s (SEC) decision to approve 11 applications on January 10.

While the approval now allows investors to expose themselves to Bitcoin without directly holding the asset itself, supervised by an SEC-regulated stock exchange, he argued there is no regulatory oversight for the cash market of digital assets, such as a crypto exchange.

“There remains nothing firmly in place to address the opaque and inconsistent practices in the cash markets for digital assets.”

Furthermore, Behnam explains that this has repercussions for the transparency of Bitcoin ETFs, since asset management firms acquire the underlying assets for the ETF from the cash market.

He raised concerns regarding trade settlement, conflicts of interest, data reporting, cybersecurity, customer protections, transparency, and general market integrity.

“The ETPs have taken a speculative and volatile asset, wrapped it in a thin layer of indirect regulation, and packaged it as a shiny new product,” he stated

Related: CFTC pays whistleblowers $16M this year for mostly crypto tips

The enforcement of crypto regulations has been a prominent topic of discussion within the U.S. government in recent times, prompted by the demand from the crypto industry.

In September 2023, Cointelegraph reported that the CFTC Commissioner Caroline Pham advocated for a limited pilot program to address crypto regulation.

Pham warned that the U.S. may soon need to “play catch-up” to crypto-friendly jurisdictions. She suggested that the program would be similar to regulatory sandboxes previously introduced at the state level.

However, many in the crypto industry anticipate that there could be increased regulatory clarity following the U.S. presidential election in November.

A recent survey on Jan. 2 by the Crypto Council for Innovation (CCI), indicated that most crypto-focused individuals stated a candidate’s position on digital assets would be somewhat, very or extremely important to their vote.