Representatives in Washington want the Commodity Futures Trading Commission (CFTC) to regulate cryptocurrencies, but there are doubts about whether the agency is up to the task.

Last week, U.S. Congressman French Hill released a draft of the Clarity Act, which would create a new asset class—“digital commodities.” This would allow eligible assets to trade relatively freely in the secondary market while also granting the CFTC most of the authority to regulate cryptocurrencies.

The CFTC's powers and governance are based on the Commodity Exchange Act (CEA), a massive law that is regularly amended and modernized through new legislation. Like the Securities and Exchange Commission (SEC) and many other federal commissions, the CFTC is composed of five commissioners, each of whom must be confirmed by the Senate.

Currently, one of the seats is vacant, and other commissioners are expected to leave the agency in the near future. If the Clarity Act passes, it could hinder the CFTC's ability to effectively regulate the cryptocurrency industry.

As is customary, when there is a change in the presidential administration, especially when the party changes, the CFTC chair typically resigns to allow the president to appoint a new chair. Notably, the Commodity Exchange Act stipulates that no more than three commissioners can be from the same political party.

When Donald Trump took office in January 2025, former Democratic chair Rostin Behnam resigned. After considering candidates to replace Behnam for some time, Trump nominated Brian Quintenz as his successor in February. Brian had previously served as a CFTC commissioner and is now the head of policy at a16z Crypto, as well as a board member of Kalshi.

However, nothing happened afterward. Quintenz's nomination went unaddressed for months and was not reviewed. This is not uncommon, as the Senate may be busy dealing with other high-priority legislation, such as Trump's budget proposal and the GENIUS Stablecoin Act.

This means that since Behnam's departure in January, the commission has been in a deadlock, with two Democratic and two Republican commissioners. This does not mean that the CFTC's operations have completely stalled; some functions of the so-called independent agency are handled by the chair's office, and since Trump took office, Caroline Pham has been serving as acting chair.

However, certain functions are not so. These functions include issuing or amending regulations, policy statements, exemptions, or no-action standards. All of these require a majority vote from the commissioners, and in the case of an even number of CFTC commissioners, if there is a dispute over the relevant regulations, it cannot be achieved. Enforcement actions are also limited, as the enforcement division needs "majority approval from the commission" to take new actions.

So far, the cryptocurrency industry has accepted this situation. A major complaint from the industry regarding the Biden administration was its management approach of "enforcement as regulation." By completely halting the pursuit of enforcement or regulatory agendas, the CFTC has temporarily resolved this issue.

The most notable example is the prediction market industry. Legal prediction markets are governed as "event contracts" under the Commodity Exchange Act. Historically, the CFTC has prohibited these contracts from involving highly sensitive categories such as elections, award shows, and sporting events. However, at the end of 2024, the prediction market platform Kalshi engaged in a landmark legal battle with the CFTC, then led by Behnam, successfully obtaining permission to open election markets.

After Trump won the 2024 election, the field continued to evolve, with aggressive new entrants pushing boundaries. Crypto.com self-certified its prediction market for the Super Bowl in December, while the CFTC under Biden attempted to block this action. However, after Trump took office, the new CFTC tacitly allowed these markets to proceed, effectively creating a new federally regulated sports betting market through inaction.

In some cases, Democratic commissioners may choose to collaborate with Republicans, such as Democratic commissioner Christy Goldsmith Romero voting to support the withdrawal of the CFTC's appeal against Kalshi's victory in the 2024 election prediction market.

However, if there are genuine disagreements, the commission will be unable to take action. This issue may become more acute in the near future.

Quintenz's nomination hearing in the Senate Agriculture, Nutrition, and Forestry Committee is scheduled for June 10, but just as he is about to take office, others are leaving.

Last week, two of the remaining four CFTC commissioners—Republican Summer Mersinger and Democrat Goldsmith Romero—left the commission. While this did not change the mathematical deadlock of the commission, it does indicate that breaking the deadlock may be more difficult. Current Republican commissioner Pham has also indicated that she will leave if Quintenz is sworn in.

Moreover, there seems to be no plan to address this capacity issue. No other commissioner candidates have been announced, and there are no reports indicating that even a candidate list is under consideration.

Perhaps the Trump administration is taking a long-term strategy, as current Democratic commissioner Kristin Johnson has also announced her plans to leave, although no specific timeline has been provided (her term lasts until 2027). Assuming they can get Quintenz appointed, they may just wait for Johnson to leave, allowing Quintenz to have sole control in the nominal five-member commission.

This is entirely legal, as Section 2(a)(3) of the Commodity Exchange Act states: "Vacancies on the Commission shall not impair the right of the remaining Commissioners to exercise all the powers of the Commission."

But does legality mean this is a good idea?

On February 5, the CFTC announced it would hold a roundtable discussion "in about 45 days" to discuss sports betting on federally registered prediction markets. The CFTC would gather opinions for several months and then convene parties for discussion.

This proved to be very necessary, as shortly thereafter, a storm erupted in the industry, with several states, including Nevada, New Jersey, and Maryland, filing lawsuits in federal court against the federally registered prediction market Kalshi.

As these cases developed, it became clear that the decision to allow these new markets would ultimately rest with the CFTC. However, when industry observers turned their attention to the commission, no decisions were made.

Members of the betting industry eagerly awaiting the announced roundtable meeting were counting down the 45-day deadline. Behind the scenes, the CFTC set the date for April 30, but publicly, the agency did not mention it again until a week before the event, ultimately canceling the meeting.

For those hoping to designate the CFTC as the core regulatory agency for the entire cryptocurrency industry, this should have been a wake-up call. The entire industry—federally regulated sports betting—was waiting for an agency's intervention, and at a critical moment, nothing happened.

This is not a criticism of the CFTC, but it may reflect a capacity issue. The agency was suddenly thrust into the spotlight at a time when commissioners were already planning to leave, and the government's future plans for it were unclear.

Perhaps Quintenz can resolve this issue, but can the cryptocurrency industry really bet its entire future on this?

Related: Due to MiCA causing uncertainty in the industry, Europe will implement regulations on decentralized finance (DeFi) in 2026.

Original: “Vacant Seats May Hinder CFTC's Ability to Regulate Cryptocurrency”

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