Is 'Simple' Regulation a Risk? Experts Debate White House's Crypto Recommendations

The recent White House report on digital assets emphasizes the need for the CFTC to have clear authority over spot markets for ‘non-security’ digital assets. Experts express skepticism about the CFTC’s ability to effectively manage both the U.S. derivatives market and the crypto sector.

Recommendations for Regulatory Clarity

The recently released White House report on digital assets has made a number of recommendations regarding regulation, the treatment of digital assets, and the operations of digital asset companies. One of the most notable proposals is to grant the Commodity Futures Trading Commission (CFTC) clear authority to regulate spot markets for “non-security” digital assets.

The report suggests that effective interagency coordination is a fundamental necessity to prevent “regulatory arbitrage,” a scenario where market participants exploit gaps or discrepancies between the Securities and Exchange Commission (SEC) and the CFTC. By working together, the agencies can create a cohesive framework that acknowledges the distinct regulatory needs of different asset classes, thereby distinguishing between digital asset securities and non-security digital assets.

Although the report only makes recommendations, the fact that a pro-crypto White House has produced it has sparked excitement among crypto advocates. They interpret this as another signal that the U.S. government is now committed to ending the pervasive regulatory ambiguity. This proposal to shift from a fragmented approach to a more unified and forward-looking one is being hailed as a major step toward establishing a stable regulatory environment.

Experts Weigh in on CFTC’s Role

Reacting to the report, industry experts have largely asserted that giving the CFTC primary jurisdiction creates a regulatory environment that is different rather than necessarily “less stringent.” They cite the CFTC’s framework as being principles-based and focused on market conduct, which is a less prescriptive approach than the SEC’s. Should this recommendation be adopted, it would reduce the compliance burden on digital asset companies and align crypto regulation with that of other commodities.

Still, others warn that while this approach might lead to “leaner compliance,” it could also “risk underestimating consumer harm in fast-moving token markets.” The solution, one expert asserts, is not about choosing a lenient regulator but about creating harmonized standards that are well-suited to the unique realities of digital assets.

Concerns Over CFTC’s Capacity

Meanwhile, experts interviewed by Bitcoin.com News expressed doubts over the CFTC’s ability to effectively oversee both the U.S. derivatives market and the crypto ecosystem. Connor Howe, CEO at Enso, argued that adding the responsibility to oversee crypto may overstretch the already constrained agency.

“The CFTC faces significant capacity constraints. Congress mandates the agency to oversee the $20 trillion U.S. derivatives market and would now add spot crypto oversight with the same limited resources,” Howe stated. The Enso executive added that inadequate preparation could lead to enforcement gaps and consumer protection deficiencies.

Sammi Li, co-founder and CEO of Jucoin, meanwhile insisted that no regulatory agency is built to deal with the pace of changes in the crypto ecosystem. Li said that under the regulatory framework envisioned in the White House report, the CFTC would have to build up its expertise in areas like custody and settlement where it has deficiencies. Still, the Jucoin CEO believes the real risk is not the lack of consumer protection but the repercussions associated with lacking adequate regulation.

“The real risk of inadequate oversight isn’t just consumer protection but that legitimate businesses will continue avoiding U.S. markets while bad actors fill the void,” Li explained.

Potential Impact of Reporting Requirements

George Massim, general counsel at Caladan, offered his perspective on the White House report’s recommendation that trading platforms for non-security digital assets share or report market data to the CFTC. Massim believes the chances of this recommendation succeeding “will depend on the format, frequency and infrastructure costs tied to reporting.”

Standardizing reporting requirements would make it impossible for even smaller platforms to comply without disproportionate cost. However, Massim warns that “if the reporting mimics legacy financial market formats or demands bespoke systems, it could accelerate consolidation and chill innovation.”

Tobias van Amstel, co-founder and CEO of Altitude Labs, echoed Massim’s sentiments and warned that a stringent reporting regime could force out smaller platforms. This, in turn, “would leave larger firms in control, shrinking competition and choice for users.” Amstel believes exempting smaller exchanges would help ensure they stay afloat.

Joël Valenzuela, director of marketing and business development at Dash, told Bitcoin.com News that while the industry applauds ending the Biden administration’s “regulation by enforcement” approach, he foresees risks in any comprehensive reporting framework, as this “will invariably favor incumbents.”

Critiques of Simplified Regulation

The many of the experts, meanwhile, acknowledged that a simple regulatory framework, while it is what the industry is clamoring for, might inadvertently end up stifling innovation. Rika Khurdayan, chief legal officer at Space and Time, believes even attempting to categorize digital assets into “rigid buckets” will fall short. What matters, Khurdayan argued, “is functional regulation – focusing on how an asset or protocol is used, not just how it’s labeled.”

Andrei Grachev, managing partner at DWF Labs, warned that while the “simple” regulatory framework envisioned in the White House report might work for spot tokens, “it may also fail to accommodate synthetic dollars, permission-aware stablecoins, or programmable yield instruments.” He added:

If classifications are not nuanced and broad enough in depth and coverage, overly reductive or simplified classifications can risk oversight or mistakenly locking and representing such assets into legacy categories that do not reflect their function or risk profile.

This sentiment is shared by Howe, who also slammed what he sees regulators’ use of tools like safe harbors and regulatory sandboxes to stop innovative financial products from reaching consumers.

“Sandboxes are where innovation goes to die slowly while regulators figure out how to ban it properly,” Howe stated.