Overview
- The SEC and CFTC are advancing their regulatory frameworks for the crypto sector while market-structure legislation remains in recess, focusing on how derivatives, such as swaps and perpetual futures, are defined and the extent of each agency's jurisdiction.
- A bipartisan coalition of former officials from the SEC and CFTC—including Chris Giancarlo and Brian Quintenz—has expressed in a comment letter sponsored by Kalshi that similar risks in the crypto space warrant similar regulatory approaches, cautioning that poorly designed rules are pushing trading activities offshore.
- Separately, the SEC has submitted a revised version of its crypto custody regulations to the White House for evaluation, aiming to clarify how regulated advisors can manage digital assets.
As market structure legislation for the crypto sector remains stalled during the summer recess, both the SEC and CFTC are proactively working on regulations for the $2.5 trillion industry.
These agencies are moving forward with initiatives related to crypto, including a renewed examination of derivatives and a revision of the SEC's crypto custody regulations.
Myriad: Will Congress pass the Clarity Act? Click to predict.The focus is now on derivatives.
In June, the SEC and CFTC solicited public feedback on defining swaps, security-based swaps, and other emerging products, as well as clarifying the jurisdictions of both agencies.
A bipartisan group of former SEC and CFTC officials has raised concerns that misdefining these lines could continue to push profitable markets overseas.
In a recent comment letter, notable figures including former CFTC Chairman Chris Giancarlo and former CFTC Commissioners Brian Quintenz and Sharon Brown-Hruska, along with former SEC Commissioner Steven Wallman and former SEC Chief Economist Chester Spatt, stressed that similar risks should be governed by similar regulations to avoid unnecessary compliance burdens.
The bipartisan nature of the letter is significant, especially as neither agency currently has bipartisan representation. The signatories highlighted that these regulatory questions are not inherently partisan, citing a shared commitment among commissioners from both parties to protect investors and maintain the competitiveness of U.S. markets.
This issue is particularly pressing for the crypto industry, as the CFTC aims to bring perpetual futures trading back onshore—a market that some of the letter's signatories believe U.S. regulations have largely pushed abroad. Recently, President Donald Trump mentioned that CFTC Chairman Michael Selig is working to introduce the popular offshore platform Hyperliquid into the U.S.
Kalshi, a prediction market platform that launched crypto perpetuals earlier this year, estimates that offshore trading in perpetuals reached $90 trillion in 2025, a significant increase from approximately $28 trillion two years prior. The letter was sponsored by Kalshi, which engaged law firm Bellementis PLLC for assistance in drafting, although the signatories clarified that they were not compensated and the firm did not influence the letter’s content.
The primary takeaway from the letter is that while regulation can divert trading activities, it does not eliminate the underlying demand or associated risks. The urgency of addressing these issues is emphasized.
“The $90 trillion offshore perpetuals market isn’t a puzzle to solve; it’s a market eager for a practical U.S. regulatory framework,” Giancarlo stated in an interview with Crypto In America. “If we align federal regulations with actual risks rather than imposing maximum burdens, that liquidity will return to the U.S. market. Each year of delay makes it increasingly difficult to attract it back.”
In addition, the SEC is revisiting the topic of custody.
Last week, the SEC submitted a proposed revision of its custody regulations for investment advisors and companies to the White House Office of Information and Regulatory Affairs (OIRA) for review.
This anticipated rule aims to address a long-standing question in the crypto sector: How can SEC-regulated investment firms provide custodial services for digital assets while adhering to federal securities laws? This matter is especially pertinent for investment advisors, who must use “qualified custodians” that comply with stringent standards for safeguarding and accounting customer assets.
Myriad: What's the next move for Bitcoin? Click to predict.The specifics of the proposal are not yet public, leaving uncertainties about which firms could qualify as crypto custodians and what criteria they must meet. However, the SEC has indicated its intent to clarify the rules surrounding crypto custody while removing outdated provisions.
This signifies a shift from the agency's earlier approach three years ago when former Chair Gary Gensler proposed a comprehensive “safeguarding” rule that would have broadened existing custody requirements to cover virtually all client assets, including cryptocurrencies. The Atkins-led SEC abandoned that proposal last year.
Meanwhile, the SEC’s “Reg Crypto” initiative, which seeks to introduce new regulations for specific crypto asset offerings, has now been published in the Federal Register and is open for public commentary until October 20.
Crypto in America is a newsletter authored by Eleanor Terrett. Follow this link to read the full article and subscribe.