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The CFTC Moves To Tame Fraud In The Crypto Space

US Commodities and Futures Trading Commission

Weeks after the US SEC increased its human resource capacity to combat fraud in the digital asset space, the US Commodities and Futures Trading Commission (CFTC) is following suit and expanding its resources to combat the growing vice.

The CFTC Chair Rostin Behnam made the revelation during the recently held Chainalysis conference. The resolution by the agency is a culmination of a series of interviews where the chair belabored the run-away fraud that is holding back the adoption of digital assets.

The Nature of Crypto Fraud

Decentralized Finance (DeFi) comprising digital assets such as NFTs, CBDCs, and Cryptos is designed to eliminate intermediaries who have traditionally defined conventional finance. For finance, Crypto hodlers have the liberty of keeping their tokens in their private wallets safeguarded by private key addresses. The wallets can be either hot or cold wallets. On the other hand, Crypto users can use third-party custodial services to safeguard their digital assets in virtual vaults.

Whereas the cold and custodial wallets are relatively safe, they do not offer the complete autonomy that underlies the Blockchain and Crypto concept. Hence, some retail and institutional investors may choose the hot storage method of crypto storage, and therefore their susceptibility to fraud increases exponentially.

Some of the hazards that aggravate the risk situation include; phishing, online preying and trickery, and hacking.

Further, some custodial service providers or exchanges holding users’ digital assets can vanish into oblivion, leaving investors with no recourse, especially with the lacuna in the law regarding digital assets and lack of regulation.

The CFTC Intends to Mitigate the Risks

Since 2015, the commission has filed 50 suits about Crypto fraud, with a whopping 23 of them being filed in the last 12 months. This move shows that the CFTC adopts a more proactive response approach to this vice.

However, reacting once a fraud materializes is not the best approach. Therefore, the Behnam team is pulling resources to track and monitor the Crypto market for red flags. The goal is to protect Crypto investors from bestowing confidence in the market and energizing the bulls to rally.

The clarity for SEC and CFTC Roles is Overdue

The current SEC and CFTC roles seem to overlap. The lack of clarity of oversight regarding Cryptocurrencies is because there is no consensus whether Cryptos are securities that should be regulated by the SEC or commodities which should be under the purview of the CFTC.

However, a bipartisan Crypto bill by Sen. Kirsten Gillibrand (D.-N.Y.) and Sen. Cynthia Lummis (R.-Wyo.) seeks to address the overlapping authority by defining the roles of the two regulators concerning Crypto. The bill seeks to further establish the role of SROs in the Crypto space to promote the laissez-faire approach of governance that calls for minimal government involvement in business affairs.

As Congress deliberates the new bill, Crypto investors can only look up to the new CFTC and SEC watchdogs to safeguard their interests.

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