Until Ripple ruling, crypto industry won’t know impact of regulator win over LBRY

(Reuters) – Digital media company LBRY Inc asserted in a series of tweets on Monday that the entire cryptocurrency industry is now under threat, after a New Hampshire federal judge ruled that its digital tokens are securities that must be registered with the U.S. Securities and Exchange Commission.

“The language used here sets an extraordinarily dangerous precedent that makes every cryptocurrency in the U.S. a security,” LBRY tweeted. “Even after five years of fighting and a court ruling, we still honestly do not know how to legally launch a public blockchain in the U.S.”

Should the cryptocurrency industry panic?

There is no doubt that the ruling from U.S. District Judge Paul Barbadoro of Concord, granting summary judgment to the SEC, is ominous for crypto token creators concerned about SEC regulation. The judge, as my colleague Jody Godoy reported on Monday, rejected LBRY’s arguments that its tokens are a true cryptocurrency used primarily to pay for services on its blockchain-backed data network and that the SEC failed to provide fair warning that it would sue over unregistered tokens that did not enter the market in an initial coin offering.

Barbadoro held unequivocally that LBRY’s tokens were investment contracts under the U.S. Supreme Court’s 1946 test in SEC v. Howey. In the LBRY case, the judge said, the only contested element of the three-pronged Howey test was whether token purchasers were led to expect profits based on LBRY’s efforts. Barbadoro said that early investors and blockchain miners who received the tokens had such an expectation because they knew LBRY’s operations relied on the tokens’ increased value.

In perhaps the most consequential language of the ruling, Barbadoro said any reasonable purchaser of the tokens would expect LBRY to use its own stake — hundreds of millions of tokens — to boost the value of the cryptocurrency. That structure alone, the judge said, “would lead purchasers of [LBRY tokens] to expect that they too would profit from their holdings of [the tokens] as a result of LBRY’s assiduous efforts.”

That’s ominous language, considering that the LBRY model, in which blockchain developers retain a big stash of the tokens that serve as currency on their platforms, is not at all unusual.

But I’d suggest the industry wait for a decision in the SEC’s closely watched case against Ripple Labs Inc, before deciding that the sky is falling.

In summary judgment briefing underway before U.S. District Judge Analisa Torres of Manhattan, Ripple has advanced arguments that LBRY’s lawyers at Perkins Coie did not assert — including a position that seems designed eventually to appeal to the current Supreme Court’s preoccupation with historical practices.

Ripple, whose lawyers declined to provide me with a statement about the LBRY ruling, has also developed a much more robust record than LBRY to support its assertion that the SEC failed to provide fair notice about which crypto tokens it would deem to be securities.

The SEC, which declined to comment specifically on the LBRY or Ripple cases, said in an email that “digital assets that qualify as securities under the criteria long-ago set out by the Supreme Court cannot be given a pass from the securities laws.”

The commission’s summary judgment brief in the Ripple case is obviously filled with background facts about what the SEC alleges to be a years-long, $2 billion offering of unregistered securities by a company that had ample warning it was skirting the law. Nevertheless, its legal arguments for why Ripple’s tokens qualify as securities under the Howey test are quite similar to those the SEC asserted in the LBRY case.

But Ripple (and its chairman and CEO, who are also defendants in the SEC proceeding) offered different defenses than LBRY. Ripple reached back to state-law cases underlying the Supreme Court’s Howey ruling to argue that an investment contract can only be considered a security if the promoter and investor entered a contract that required the promoter to take particular actions to benefit the investor and granted the investor a specific right to share in profits generated by the promoter’s efforts. Defense counsel from Debevoise & Plimpton; Kellogg, Hansen, Todd, Figel & Frederick; Paul, Weiss, Rifkind, Wharton & Garrison; and Cleary Gottlieb Steen & Hamilton said there was no such contract between the Ripple defendants and purported investors who received tokens through donations, giveaways and even sales.

Ripple’s brief argued that even after Howey, neither the 2nd U.S. Circuit Court of Appeals nor the Supreme Court has held the sale of an asset to be an investment contract unless the promoter and purchaser had specific rights and obligations. Ripple drew an analogy between its tokens and diamonds, arguing that when DeBeers sells uncut diamonds, it is not entering into investment contracts with buyers, even if those buyers expect to profit from the diamonds they’ve bought.

In the LBRY case, remember, Barbadoro said that LBRY’s control of hundreds of millions of tokens was a signal to investors that the company would act to prop up their value. Ripple pointed again to the diamond market to argue otherwise: The SEC does not regulate diamond purchases as securities deals, Ripple said, despite DeBeers’ marketing efforts.

Ripple is also asserting a much more sweeping fair notice defense than LBRY, which argued simply that the SEC previously acted only when token issuers conducted public offerings. The New Hampshire judge said LBRY failed to show that the SEC pledged only to enforce the Howey test for tokens sold in ICOs and that the Howey test itself contained no such restriction. (LBRY counsel from Perkins Coie declined to comment on differences between their arguments and Ripple’s.)

Ripple argued in its response to the SEC’s summary judgment motion that the commission’s own files reflect years of confusion and uncertainty within the agency about how or whether to regulate cryptocurrencies. “No wonder that market participants were unsure what to think,” Ripple said. At the very least, it argued, the notice issue must be hashed out at trial.

There are, to date, nearly 700 docket entries in the Ripple case, compared with only 86 in LBRY. If the SEC wins summary judgment against Ripple, the industry will have real cause to worry.

Read more:

U.S. securities regulators win case against crypto company LBRY

Coinbase joins crypto supporters siding with Ripple in SEC case

Ripple’s top lawyer slams SEC for ‘offensive’ use of unsealed legal memos

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.

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U.S. securities regulators win case against crypto company LBRY

  • Company said its credits were a cryptocurrency
  • Judge ruled credits were sold as investments

(Reuters) – The U.S. Securities and Exchange Commission won its lawsuit against blockchain-based publishing company LBRY Inc on Monday when a U.S. judge ruled that the company offered its digital assets as securities.

The SEC sued LBRY last year, saying the New Hampshire-based company violated U.S. law by selling its LBRY Credits without registering them as securities.

U.S. District Judge Paul Barbadoro in Concord, New Hampshire ruled that no reasonable jury could reject the SEC’s claim that LBRY offered the credits as an investment in its content distribution network.

LBRY CEO Jeremy Kauffman said the decision “threatens the entire U.S. cryptocurrency industry” by setting a standard that would deem “almost every cryptocurrency” a security.

A spokesperson for the SEC did not immediately have comment.

Judges have ruled in other cases that certain digital tokens were securities. LBRY argued that, unlike in those cases, its credits were functional as currency on its platform early on, allowing content creators to earn cash and accept tips.

Barbadoro wrote Monday that “nothing in the case law suggests that a token with both consumptive and speculative uses cannot be sold as an investment contract.”

The judge also rejected LBRY’s defense that it lacked notice that the law applied to it. The company had said its case was the first where the SEC alleged registration violations against an issuer of digital tokens that did not conduct an initial coin offering.

The credits had a market cap of $12.74 million on Monday according to Coinbase, a little more than half of what they were worth in March, before the implosion of stablecoin TerraUSD prompted a broader downturn in the cryptocurrency market.

The case is SEC v. LBRY Inc, U.S. District Court for the District of New Hampshire, No 1:21-CV-00260.

For the SEC: Marc Jones, Eric Forni and Peter Moores

For LBRY: John Dixon and Keith Miller of Perkins Coie; and William Christie and Timothy McLaughlin of Shaheen & Gordon

Read more:

Crypto company jokes about using garlic to ward off SEC

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Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com

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‘Basketball cards are not securities’ says NFT maker in bid to nix lawsuit

Mar 12, 2022; San Francisco, California, USA; A view of the NBA logo painted on the sideline at Chase Center. Mandatory Credit: Darren Yamashita-USA TODAY Sports

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(Reuters) – NFT creator Dapper Labs urged a Manhattan federal court to toss a lawsuit claiming its NBA Top Shot Moments are securities, saying the plaintiffs can’t “make a federal securities case over basketball cards.”

The blockchain-based video clips of basketball players were developed as collectables with the National Basketball Association, and bear none of the hallmarks of securities, Dapper Labs wrote in its motion to dismiss the case on Wednesday.

“Basketball cards are not securities. Pokémon cards are not securities. Baseball cards are not securities. Common sense says so. The law says so. And, courts say so,” the company said.

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Following the initial coin offering boom, investors started filing lawsuits alleging certain digital assets were unregistered securities that violated U.S. law. Some cases were dismissed; others are still pending.

Moments purchasers sued Dapper Labs and its chief executive Roham Gharegozlou in May 2021, claiming the NFTs were securities as their value is tied to the success of the blockchain they are housed on.

Dapper Labs argued in its motion that the NFTs are distinct collectables, not units of a larger enterprise like securities.

NBA Top Shot was among the first NFT products to take off as the sector gained popularity last year, with monthly sales reaching $232 million in February 2021.

The case is Friel v. Dapper Labs Inc et al, No. 21-CV-05837, U.S. District Court, Southern District of New York.

For Dapper Labs: Kenneth Herzinger, Sean Unger and Erin Zatlin of Paul Hastings

For the NFT owners: Phillip Kim, Laurence Rosen and Michael Cohen of The Rosen Law Firm

Read More:

Can you ‘own’ a goal? Collectible NFTs rolling into elite soccer

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Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com

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U.S. Treasury seeks input on cryptocurrency risks, benefits

The U.S. Treasury building is seen in Washington, September 29, 2008. REUTERS/Jim Bourg/File Photo

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July 12 (Reuters) – The U.S. Treasury on Tuesday said it was seeking comment on the on the risks and opportunities posed by digital assets as it seeks to prepare a report for President Joe Biden on the implications of developments such as cryptocurrencies.

The official query builds on an executive order Biden signed in March, which directed government agencies to study cryptocurrencies and other digital asset products, including central bank digital currencies.

“For consumers, digital assets may present potential benefits, such as faster payments, as well as potential risks, including risks related to frauds and scams,” Treasury Under Secretary for Domestic Finance Nellie Liang said in a statement.

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The crypto market, including bitcoin and other products, has rapidly grown in popularity in recent years, despite concerns from regulators and some policymakers that the market lacks sufficient oversight, transparency and consumer protections.

The crypto market has been wracked by turmoil in recent weeks, with a number of high-profile firms and tokens collapsing or refusing to allow customers to withdraw funds in a bid to stabilize themselves.

The Treasury’s query is far-ranging, asking for input on a host of questions, including how businesses are using cryptocurrency, where consumers may not be sufficiently protected, and how the nation’s poorest could benefit or face risk from broader cryptocurrency adoption.

The Treasury is accepting comments until Aug. 8.

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Reporting by Costas Pitas in Los Angeles; Editing by Tim Ahmann and Marguerita Choy

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Factbox: Singapore’s rise, and falter, as Asia cryptocurrency hub

Representations of the Ripple, Bitcoin, Etherum and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture, February 14, 2018. REUTERS/Dado Ruvic

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HONG KONG/SINGAPORE, July 12 (Reuters) – Singapore’s burgeoning cryptocurrency sector has been shaken by the recent collapse of Three Arrows Capital, a cryptocurrency hedge fund, and signs of tighter scrutiny by regulators at the Monetary Authority of Singapore. read more

Following are key facts about the rise of Singapore as an Asian cryptocurrency hub, and the fallout from the Three Arrows collapse.


Investment in Singapore’s crypto and blockchain companies surged to $1.48 billion in 2021, according to KPMG, ten times the previous year and nearly half the Asia Pacific total for 2021.

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PwC says 6% of the world’s crypto funds are based in Singapore, ranking it a joint third globally – along with Switzerland and Hong Kong – behind the U.S. and UK.

Singapore, one of Asia’s main investment banking and asset management centres alongside Hong Kong, is keen to establish a leading role in financial technology, including blockchain and crypto.


The scale and range of Singapore’s crypto companies and service providers attracted digital asset companies fleeing regulatory crackdowns elsewhere.

These include Huobi, a crypto exchange initially focused on China that now has a major presence in Singapore.

U.S. firms like crypto exchange Gemini have set up regional Asia headquarters in Singapore.

The citystate was also a forerunner in developing a licencing regime for crypto companies, which attracted many companies hoping the endorsement of a leading regulator would help them to win business.

Other industry leaders such as crypto exchange Coinbase (COIN.O) have applied for licences in Singapore.

DBS (DBSM.SI), Singapore’s largest bank, has launched its own crypto exchange.


Digital currencies have been on the backfoot for months, with Bitcoin losing roughly half its value since the start of May.

The sell-off was triggered by the collapse of stablecoin TerraUSD and its paired token Luna, resulting in large losses for holders such as 3AC. The company lost about $200 million of its investment in Luna, an executive told the Wall Street Journal last month, adding that the company was still trying to quantify its losses.

According to U.S. court filings, several of 3AC’s lenders have issued it notices of default.


The Monetary Authority of Singapore’s statements have indicated a welcoming approach, encouraging crypto-related services.

At the same time, some companies say the authorities’ soothing rhetoric belies an occasionally harsh regulatory stance.

Only a handful of approvals have been granted so far among well over 100 applicants for new crypto payments licences.

Chia Hock Lai, co-chairman, Blockchain Association Singapore, said there were currently well over 200 crypto businesses in Singapore, but several had shut down or moved out after the licencing regime came in.

The most high-profile of these is Binance, the world’s largest crypto exchange, which left Singapore last year as it came under close scrutiny around the world. read more

Like regulators elsewhere, MAS has also indicated that it would take a tough stance on money laundering, consumer protection, and other risks that may be associated with the digital currency sector.

Tharman Shanmugaratnam, Senior Minister and chairman of the MAS, told parliament last week that the regulator was considering additional consumer safeguards for cryptocurrency trading, although he did not mention 3AC.

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Reporting by Alun John and Chen Lin; Editing by Edmund Klamann

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Bitcoin rises 6.1% to $21,792

A neon logo of cryptocurrency Bitcoin is seen at the Crypstation cafe, in downtown Buenos Aires, Argentina May 5, 2022. Picture taken May 5, 2022. REUTERS/Agustin Marcarian

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July 7 (Reuters) – Bitcoin rose 6.06% to $21,792.16 at 20:02 GMT on Thursday, adding $1,244.71 to its previous close.

Bitcoin, the world’s biggest and best-known cryptocurrency, is up 23.9% from the year’s low of $17,592.78 on June 18.

Ether , the coin linked to the ethereum blockchain network, climbed 5.21% to $1,247.79 on Thursday, adding $61.78 to its previous close.

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Reporting by Akriti Sharma in Bengaluru; Editing by Shailesh Kuber

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Explainer: Can crypto holders recoup losses in court?

June 24 (Reuters) – A downturn in cryptocurrency prices and crash of one stablecoin has led some investors to try to recover their losses in U.S. court. Here is how cryptocurrency litigation has fared so far and the challenges investors may face.


Companies that created cryptocurrencies, exchanges that facilitated their sale, and individuals who promoted them have all been sued.

Kyle Roche, who represents cryptocurrency holders in several lawsuits, said U.S. claims over cryptocurrency often involve alleged violations of federal securities or commodities laws, which prohibit fraud and manipulation and require products and operators to be registered with U.S. authorities.

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The latest lawsuit took aim at Terraform Labs, the company behind Terra USD, over the stablecoin’s recent collapse.

A crytocurrency investor sued the Seoul-based company and its Chief Executive Do Kwon on June 17, alleging they failed to register the company’s digital assets as securities and worked with several venture capital funds that backed Terra USD to defraud investors.

A Terraform Labs spokesperson called the claims meritless.

Tether, which is behind the world’s largest stablecoin, has been accused of rigging cryptocurrency markets in a lawsuit in New York. And Ripple, whose founders created the token XRP, has been hit with a lawsuit in California, claiming it sold unregistered securities.

Both lawsuits have survived motions to dismiss.

A spokesperson said Ripple disputes the allegations and will defend against them. Tether did not respond to a request for comment.

Cryptocurrency exchanges have been another target for investors seeking to recoup losses.

Binance U.S. was sued on June 13 by investors claiming it falsely marketed TerraUSD as a safe asset ahead of its collapse. And in March, investors accused Coinbase of selling 79 digital assets as unregistered securities. read more

Binance and Coinbase have denied the allegations.

Investors are also suing celebrities who have publicly touted cryptocurrency. A lawsuit filed in Los Angeles claims Reality TV star Kim Kardashian and boxing legend Floyd Mayweather Jr. engaged in a cryptocurrency pump and dump. Representatives for Kardashian and Mayweather did not respond to requests for comment. read more


A wave of lawsuits brought in 2020 against exchanges alleging they fueled an illegal boom in digital coins largely failed after judges found some of the claims were filed too late or had too little connection to the United States.

Timing should not be an issue for newer lawsuits, but cryptocurrency holders seeking to sue overseas companies in U.S. court could still face hurdles.

Token holders won a default judgment in New York against Singapore-based exchange KuCoin, but dropped the case after a Singaporean court would not make the company provide information to enforce the judgment.

KuCoin did not respond to a request for comment.

Another potential hurdle for investors filing claims under securities or commodities laws will be showing their tokens meet the legal definition of those assets. Some courts have ruled that certain cryptocurrencies fit the bill, but the issue remains unsettled.

Cryptocurrency holders may face additional obstacles when going after exchanges. In the Coinbase lawsuit, the exchange has argued that it was not a party to the transactions, and that private litigants cannot enforce registration requirements.


While many cryptocurrency lawsuits are pending, the SEC has reclaimed some funds for investors in a handful of digital assets through settlements.

But even after a settlement, investors may face long waits and still end up with less than they shelled out.

Last year, blockchain company Block.one agreed to pay $27.5 million to settle token holders’ lawsuit alleging it had violated securities law.

More than 100 token holders filed claims worth more than $75.7 million, according to court filings. The settlement has not yet received final approval.

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Reporting by Jody Godoy;
Editing by Noeleen Walder and Richard Chang

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Middle East-focused crypto firm BitOasis cuts jobs amid sector turmoil

Representation of cryptocurrency bitcoin is seen in this illustration taken November 29, 2021. REUTERS/Dado Ruvic

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DUBAI, June 19 (Reuters) – BitOasis, a Middle East-focused cryptocurrency exchange based in the United Arab Emirates, said on Sunday it laid off nine of its staff, the latest company in the sector to cut jobs in the face of a downturn and market turmoil.

The cryptocurrency market has been rocked by extreme volatility with crypto lender Celsius Network freezing withdrawals early last week as investors dumped risky assets on fears about aggressive Federal Reserve rate hikes to cool red hot inflation.

On Tuesday, cryptocurrency exchange Coinbase Global Inc (COIN.O) said it was slashing 1,000 jobs, or 10% of its workforce. read more

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BitOasis was founded in Dubai in 2015 and serves English and Arabic speaking customers in the Gulf.

“Earlier this week, nine employees were made redundant across offices in Dubai, Abu Dhabi and Amman,” its CEO and co-founder Ola Doudin said in an email.

A spokesperson for the company said this represented nearly 5% of the company’s workforce.

In 2021, BitOasis received permission to operate a Multilateral Trading Facility from the Abu Dhabi Global Market and is registered as a Virtual Asset Service Provider with the Financial Intelligence Unit of the UAE central bank.

BitOasis received provisional approval from Dubai’s Virtual Assets Regulatory Authority (VARA) in March 2022.

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Reporting by Saeed Azhar; Editing by Emelia Sithole-Matarise

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Crypto firm Celsius pauses all transfers, withdrawals as markets tumble

A representations of cryptocurrencies in this illustration taken, January 24, 2022. REUTERS/Dado Ruvic/Illustration

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June 13 (Reuters) – Cryptocurrency lending firm Celsius Network will pause withdrawals and transfers between accounts due to “extreme market conditions”, the company said on Monday, in the latest sign of pressure in the crypto industry.

Bitcoin extended earlier declines after Celsius’s announcement, falling more than 6% to as low as $24,888, an 18-month low. Ether , the world’s second-largest cryptocurrency, dropped more than 8% to $1,303, its lowest since March 2021.

“We are taking this necessary action … in order to stabilize liquidity and operations while we take steps to preserve and protect assets,” the company said in a blog post.

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“Furthermore, customers will continue to accrue rewards during the pause in line with our commitment to our customers.”

Celsius Network, which raised $750 million in funding late last year, is a significant player in crypto lending. It offers interest-bearing products to customers who deposit their cryptocurrencies with the company, and lends out crypto currencies to earn a return.

As of May 17, the company had processed $8.2 billion worth of loans and had $11.8 billion in assets, according to its website.

It said in August last year that it had more than $20 billion in assets.

While crypto lending has become increasingly big business, the sector has come under regulatory scrutiny, particularly in the U.S. read more

Crypto markets have been under pressure in recent months, falling alongside other so-called risk assets as interest rates have risen around the world.

Price falls have also both been caused by and contributed to the collapse of some crypto projects. Most notable was the fall of stablecoin TerraUSD, which last month broke its dollar peg and collapsed in value, rocking the crypto industry. read more

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Reporting by Abinaya Vijayaraghavan in Bengaluru and Alun John in Hong Kong; Editing by Bradley Perrett

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CFTC eyes potential oversight of cryptocurrencies, carbon trading – commissioner

HOUSTON, June 8 (Reuters) – Cryptocurrency developers and U.S. lawmakers are moving toward putting the Commodity Futures Trading Commission in charge of regulating digital currencies, said CFTC Commissioner Summer Mersinger.

The designation would expand the CFTC’s mandate to oversee agricultural, energy and financial options markets and pave the way for the agency to regulate other digital assets such as non-fungible tokens, or NFTs.

Separately, the CFTC is considering how carbon trading markets operate, with a view toward their use in hedging and risk management.

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Mersinger, one of five commissioners on the independent board that oversees commodity and financial futures markets, was speaking on Tuesday on the sidelines of the Reuters Commodities Trading USA conference in Houston.

Major crypto companies have backed the CFTC and on Tuesday U.S. senators Cynthia Lummis, Republican of Wyoming, and Kirsten Gillibrand, Democrat of New York, filed a bill that would make CFTC the industry’s main overseer.

“You’re seeing the industry coalesce around the CFTC becoming the primary regulator,” said Mersinger.

Lawmakers have not decided which agency would oversee cryptocurrencies but the proposed Lummis-Gillibrand bill offers a starting point for Congressional debate. read more

The CFTC has begun its own review of a potential role over cryptocurrencies, with staff looking for opportunities in areas such as spot-market crypto trading “where we could have some expanded role making,” Mersinger said. She cautioned that the agency historically has not regulated spot markets and its reviews are preliminary.

“We’re still a strong regulator but our registrants have a lot of flexibility,” she said. “They have been very interested in that approach versus the top-down way of some other financial regulators,” she said.

Carbon trading is another area where the CFTC has an interest. Its regulation now is largely policed by industry groups and voluntary on the part of participants.

“We have interest in that space but we don’t regulate that space,” Mersinger said. One consideration is what changes may be needed for the voluntary markets to work properly, she added.

In 2020, when U.S. oil futures prices turned negative for the first time on fears of a lack of physical storage amid collapsing demand, CFTC issued an advisory warning of the risks that not enough people took seriously, she said.

One lesson it learned was that there was a need for broader inter-agency collaboration and discussion of contract settlement terms with the exchanges and traders, she said.

“At the end of the day, storage wasn’t as big an issue” as feared, but it was not well communicated, she said.

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Reporting by Gary McWilliams and Arathy Somasekhar; Editing by Richard Chang

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