Crypto Giants Pushed To Ease Rules On Risky Assets In Senate Bill

America’s leading cryptocurrency exchanges are pushing for more lenient treatment of certain risky assets in a pending digital assets bill, according to a copy of their red-line edits obtained by POLITICO.

Coinbase, Kraken and Gemini suggested earlier this year that lawmakers scrap a provision in the legislation requiring crypto trading platforms to only offer trading on certain digital assets that are “not readily susceptible to manipulation,” said three people familiar with the matter, who confirmed that the companies were behind the recommended change.

The crypto giants were concerned that the language would make it harder for exchanges to list smaller tokens on their platforms, said one of the people, who, like the others, was granted anonymity to discuss the behind-closed-doors process. The edit was one of dozens made in the document, which was sent after the Senate Agriculture Committee voted in January to advance the legislation.

Their ask offers a new and unfiltered view into the industry’s wishlist for the landmark legislation, which will establish a broad, new framework for regulating the roughly $2.7 trillion crypto market. It also shows how some of the crypto industry’s priorities diverge from longstanding regulatory practices.

The Commodity Futures Trading Commission, a financial regulator that will take on sweeping new power over digital assets under the crypto bill, has long required that exchanges seeking to list products tied to oil, corn and other commodities “self-certify” that those contracts can’t be easily manipulated or artificially inflated before offering them for trading. The mandate even applies to so-called prediction markets regulated by the CFTC, which offer platforms for people to bet on everything from political races to Major League Baseball games.

But the crypto companies are raising objections. The exchanges’ central concern is that the anti-manipulation provision would make it harder for them to attest that smaller tokens that are traded less frequently — and, as a result, at risk of wild price moves — aren’t at risk of manipulation. In addition, industry officials have also said crypto tokens are unique from the so-called derivatives that the CFTC oversees and deserve distinct regulatory treatment. Some have even raised concern that the language could become a cudgel for future CFTC chairs, should they seek to crack down on the industry and exchanges.

“It was a very large walk back” from earlier drafts of the bill, another one of the people said. “They obviously want a light-touch regulation.”

Crypto companies pushed back on the idea that they are hoping to water down market safeguards. Coinbase and Kraken spokespeople shared a joint statement from the companies and Gemini stating that the industry has been working with Congress for years “to finally bring digital asset markets under comprehensive federal oversight — including granting the CFTC robust new authority and stronger tools to combat fraud, manipulation, and market abuse.”

“Millions of Americans are participating in digital asset markets without the federal regulatory protections they deserve,” the companies said. “Every element of our legislative engagement has been aimed at changing that — by expanding oversight, not limiting it.”

A Gemini spokesperson did not respond to requests for comment.

Coinbase Federal Policy Director Robin Cook described the issue as a chicken-and-egg problem: Effectively, how can a token attract enough trading volume and interest to not be a risk for manipulation without being listed on an exchange.

“We strongly support the readily susceptible to manipulation standard in traditional futures and swaps markets,” Cook said. “What we’re trying to do here is make sure that we’re not inadvertently hamstringing the agency, the industry [and] consumers by importing a standard that doesn’t make sense” for spot crypto.

“We want to make sure consumers are protected with a standard built for spot trading,” Cook added.

The exchanges’ edit was one of many sent to lawmakers on the Senate Agriculture Committee, which oversees the CFTC and is responsible for half of the sweeping so-called market structure bill.

The legislation would grant an array of new authorities to the CFTC — and specifically regarding digital commodities, or crypto tokens that are akin to bitcoin and ether. Currently, the CFTC doesn’t have the power to directly regulate the trading of those tokens, which account for a wide swath of the activity in crypto markets.

The Agriculture panel approved its portion of the legislation along party lines in late January, but it is expected to be overhauled significantly before it goes to the full Senate in order to win support from Democrats, whose votes are needed to pass a final bill.

Sara Lasure, a spokesperson for Senate Ag Chair John Boozman of Arkansas, declined to comment.

A second half of the bill dealing with the Securities and Exchange Commission, the other major financial regulator that will oversee digital assets under the legislation, falls under the jurisdiction of the Senate Banking Committee. Lawmakers on the Banking Committee are furiously negotiating right now in hopes of marking their portion of the bill as soon as next week. Exchanges are also lobbying Banking Committee members for changes to address concerns about their ability to list small tokens, according to three people with knowledge of the matter who were granted anonymity to discuss closed-door negotiations.