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The Commodity Futures Trading Commission (CFTC) has released its framework for 2020-2024. The framework will support the emergence of cryptocurrencies derivative markets.
The Commodity Futures Trading Commission (CFTC) has released its strategic plan that will span through 2024. The strategic plan details a “Holistic Framework” that will see the increased adoption and integration of digital assets. The CFTC regarded crypto assets as 21st-century commodities, thus giving the commission the right to put in place the regulations that will back the assets that aim to revolutionize the world’s digital economy.
The strategic goals and objectives that are detailed in the will guide and prioritize CFTC’s efforts to achieve its oversight mission which includes a special obligation to ensure the United States’ derivatives markets are adequate while giving room to encourage new innovations that will support the sector’s boom. The U.S. derivatives market has seen tremendous growth over the years and with DeFi options taking the front stage, investors are poised to consider investment in crypto-backed market derivatives which necessitates the need for regulations.
Growth of Decentralized Finance
The advent of digital currencies has proposed an alternative to traditional financial systems which many are beginning to consider as a viable alternative. This alternative proposition includes a decentralized finance (DeFi) system that offers as much as what financial institutions offer but with more independence and control for investors.
With the growth of DeFi, tokenized derivatives are becoming a commonplace and DeFi proponents are incorporating futures, options, and swaps all of which were under the regulatory jurisdiction of CFTC. Considering the volatility of the futures markets, the CFTC will have to take steps to avoid systemic risk which will not only protect market participants but increase confidence in the soundness of the entire U.S. derivatives markets.
Overview of the CFTC Strategic Plan on Crypto Regulation
The strategic plan has 5 complementary goals that will work simultaneously to bring the desired result. The first strategic goal has the defined objective to Strengthen the resilience and integrity of the U.S. derivatives markets while fostering their vibrancy. Owing to its dynamic metamorphosis, the CFTC will be tasked with the dual challenge of protecting and advancing the world’s leading derivatives markets. Protecting the derivatives market from fraud and undue market manipulation will help boost global confidence in the market, and the advancement agenda will pose no limitations on probable innovation, both of which will have a significant impact on the entire derivative market.
The second goal will help deepen the agency’s commitment to the agricultural sector, the protection of customer’s access, and enabling access to information. This goal will also seek to educate Americans on the derivatives market in general. With the third goal, the CFTC Encourages innovation and enhance the regulatory experience for market participants at home and abroad. This is particularly needed for the growth of the blockchain ecosystem as it will attract foreign-based blockchain firms to the American market. The fourth goal will ensure that firms comply with the commission’s extant regulation while the fifth goal gives allowance for CFTC’s internal operations. With it, CFTC will focus on its unique mission in order to improve its operational effectiveness. Commending the framework, the CFTC Chairman Heath P. Tarbert said:
“This is a bipartisan, consensus plan that can stand the test of time, I am proud of the hard work that went into developing the plan and the unanimous support it ultimately received. It will guide the last of the CFTC’s unfinished business to completion and better position the agency to tackle the unwritten future.”
The CFTC has supported Bitcoin (BTC) and Ethereum (ETH) crypto markets drawing from Chairman Hearth’s own words in 2019:
“We’ve been very clear on bitcoin: bitcoin is a commodity under the Commodity Exchange Act. We haven’t said anything about Ether – until now. It is my view as Chairman of the CFTC that Ether is a commodity, and therefore it will be regulated under the CEA. And my guess is that you will see, in the near future, Ether-related futures contracts and other derivatives potentially traded.”
The Commission has also made it clear that XRP is not regarded as a commodity indicating that all digital currencies do not have the same status recognition by the commission.