CFTC proposes federal rules for leveraged crypto trading after Congress stalls

What’s going on here?

On Monday the CFTC released what is formally called an advance notice of proposed rulemaking: an outline of its thinking, published to gather comments before any binding rules are drafted. It describes two connected regimes. Regulation Crypto Asset Transactions, or CTX, would define which retail crypto trades fall under federal oversight. Regulation Crypto Asset Markets, or CAM, would let exchanges register as a new, narrower type of federally supervised platform. The move comes weeks after the Digital Asset Market Clarity Act, which would have set rules for most US crypto activity, failed to pass the Senate.

What does this mean?

The legal basis is a section of the 2010 Dodd-Frank Act: when ordinary investors buy commodities using borrowed money or margin, those deals must happen on an exchange the CFTC supervises, just like futures. The agency is reading that broadly: merely offering leverage to customers could bring even fully paid trades under its watch if the purchased crypto stays on the exchange's internal books. Trades escape this oversight only through actual delivery to the customer, which the CFTC suggests could mean users holding their own private keys within a set period. Many on-chain trading protocols that send tokens straight to users' wallets would usually meet that test.

Exchanges that register as crypto asset markets would route trades through futures commission merchants, brokers already subject to anti-money-laundering rules, and leverage could only come from those brokers or banks they sponsor. The agency is weighing proof-of-reserves requirements for platforms holding customer assets together and limits on listing tokens that are easy to manipulate. Chairman Michael Selig, currently the commission's only member, said the framework is meant to stop schemes like FTX before they happen rather than prosecute them afterward, and described past enforcement cases against Kraken and Uniswap as regulation by enforcement.

The big gap is spot trading. The CFTC has no authority to directly regulate the ordinary buying and selling of tokens such as bitcoin without leverage, so exchanges that avoid leverage can keep operating under state money-transmitter licenses, with the CFTC limited to policing fraud and manipulation. The Securities and Exchange Commission is working on a parallel track, having proposed its own crypto rules in August and an exemption for tokenized stocks last month. Rules written by agencies rather than Congress can also be changed more easily by a future administration.

The bull case

A clear federal path for exchanges could bring more institutional money and mainstream products into the US crypto market. Proof-of-reserves and broker safeguards address the weaknesses that FTX exposed, which may increase trust, and firms already registered with the CFTC are well positioned to expand.

The bear case

The plan is only an early proposal, could change substantially, and leaves spot trading under a patchwork of state rules. Stricter leverage oversight may push some trading offshore or onto unregulated platforms. Because the rules come from agencies led by a single party rather than from legislation, they could be reversed after future elections.