Crypto and bitcoin have problems the CFTC and SEC can't fix

The crypto industry is still smarting over the millions it spent lobbying to get its preferred legislation enacted only to have it die on the Senate floor. But all is not lost.

The Commodities Futures Trading Commission and Securities and Exchange Commission are focused on doing the important work of making sure crypto assets are available to any mom or pop who wants to make highly leveraged bets on the most speculative asset class on the planet. Because prediction markets don't offer enough excitement. Scratch that. Not excitement, investment.

The CFTC on Monday proposed new rules to cover leveraged crypto trading and opened them up to public comment, our Maria Volkova reported. The federal agency's chair, Michael Selig, says it has the authority to issue regulations covering crypto trading and to establish a federal framework for it, which makes one wonder why Congress is therefore needed at all. 

This is the same agency that was just sued by the Independent Community Banker Association for, allegedly, overstepping its statutory authority, so exactly what the boundaries are for the CFTC and whether the CFTC should be allowed to draw them itself is open to interpretation.

But the CFTC is just trying to keep pace with the SEC, which has already proposed exemptions for crypto companies that want to raise capital via their purportedly sui generis crypto assets but can't do the too difficult work of filling out a standard securities application with the commission that regular, analog startups do.

I'll be honest. I've been around cryptocurrencies for more than a decade, and it has never been clear to me that they need specialized legislation. What has been clear to me is that the crypto companies never wanted to submit to traditional legislation.

And, look, I can understand why. It takes time and money and lawyers to go through the SEC trying to get your securities offering approved. It's even harder to get a trading market approved. Compared to spinning up a bitcoin clone and ginning up interest in online forums, the SEC and CFTC's requirements were old-world albatrosses nobody in cryptoville wanted to deal with. Slow, plodding, costly. It's not entirely unlike the fight over Kalshi and Polymarket, which don't want to be regulated for what they are, which is gambling platforms, and are arguing for special treatment because they are "prediction markets."

The crypto industry hated Gary Gensler when he ran the SEC, which was ironic because he was probably the regulator who understood the industry the best. He was for a time a professor at MIT, where he taught a class on crypto. No matter. What they specifically hated was Gensler's stance, derived from his exploration of the asset class, that the vast majority of crypto assets were securities that needed to be registered to be offered to U.S. investors. They did not like that at all.

Selig and his counterpart at the SEC, Paul Atkins, seem inclined to make rules that will favor the industry. But the problem isn't really rules anymore. A decade ago, there was a fair argument to be made that if the crypto market had clear rules, then it could legitimately be opened up broadly to investors. But there is no lack of access to crypto trading today. This simply is not a problem. The problem is that cryptocurrencies are wildly volatile, speculative assets that most people have no interest in. 

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Trading volume for bitcoin, in bitcoin terms, not dollar terms, has been falling for almost a decade. And bitcoin is by far the most prominent cryptocurrency. There has been such little growth in this market that dogecoin, which was created as a literal joke, is still a major cryptocurrency. 

The crypto industry's problems will not be solved by legislation, whether it comes from the CFTC, the SEC, or Congress. The industry's problem is that the average person — the proverbial Main Street investor — is interested in it, and you can't legislate interest.