Fireside: CFTC Chairman Mike Selig

Good morning, everyone. It's an honor to be joined by Mike Selig, the 16th chairman of the Commodity Futures Trading Commission. Chairman, you just published a first 100 days op-ed, and for Bitcoiners that have been dealing with more than a decade of regulatory uncertainty and sometimes hostility, tell us what the last 100-plus days have meant for you now that you're in the building.

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We're at a pivotal moment right now. We have seen the onslaught of the prior administration against the crypto industry, and America is now the crypto capital of the world. We have ended regulation by enforcement. Gary Gensler is no longer running the SEC. We have pro-crypto, pro-innovation leaders throughout our administration. You just heard from Kash Patel and Todd Blanche, and we're turning a new page.

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It's really important that we put clear rules of the road in place for this new asset class so that it can flourish and thrive here in the United States, and that's exactly what we're here to do. In my first 100 days as chairman, I made sure to work together with Chairman Atkins at the SEC to put in place a clear taxonomy for crypto assets, clarifying which is a security and which is not. We've put in place a new regime for introducing brokers, so we're allowing digital wallet providers to come and offer their software here in the United States without registering with us as an introducing broker. And we're just getting started. We've got so much more to do.

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The CFTC has a special role for Bitcoin itself. When other regulators were either ignoring or sometimes hostile to the industry in the early days, the CFTC, as early as 2014, 2015, and 2016, was looking at Bitcoin and saying, you know what, this is a commodity. This should be treated like every other commodity within our framework. Does that history inform your approach now as someone who was previously at the CFTC and now as chair?

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Absolutely. So many years ago, I had the opportunity to work with Chris Giancarlo, who was previously the chairman of the agency, back when he was a commissioner. We were both really fascinated by Bitcoin. I had actually read the white paper around 2011 and fallen down the rabbit hole, and I had the opportunity in 2013 and 2014 to come and work at the CFTC.

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We saw Bitcoin. It really didn't look like a security, right? It was this decentralized asset that was something entirely new, and it looked a lot like other commodities in our market: gold, silver, oil. The markets, as opposed to any individual, controlled the price. It was priced based on supply and demand. Years later, the CFTC became the first agency to green light a federal regulatory framework for crypto assets by allowing Bitcoin futures contracts to be traded on our regulated exchanges.

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I do believe that the CFTC is the first mover when it comes to crypto, and we're really lucky to have legislation pending in Congress that we're hoping to get across the line. That will expand our authority and make sure that we future-proof the asset class here in the United States with clear rules of the road and a regulatory framework.

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You mentioned before your work with Chairman Atkins. Before you took over at the CFTC, you were his chief counsel, as well as chief counsel to the SEC's crypto task force. When you were there, you helped launch Project Crypto and issued a lot of important guidance, including on proof-of-work mining. In January, after landing at the CFTC, you launched Project Crypto jointly with the SEC and signed an MOU, a memorandum of understanding, to bring together cross-agency harmonization.

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That's really exciting for lawyers and policy people. But for market participants in the audience and yourself, why is this harmonization so important for the future, not only of Bitcoin and crypto and the other markets that are governed, but generally how we build good government and good policy?

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We saw under the prior administration that the SEC weaponized its enforcement division and really tried to drive crypto offshore. Then we saw the prudential regulators come in, debanking those who were working in the industry and making it really impossible to get a banking account. This was Operation Chokepoint 2.0.

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Of course, we ended that under this administration, but we need to make sure that our agencies are not weaponized against the industry in the future. Chairman Atkins and I have come together to create this new initiative called Project Crypto, which began as Chairman Atkins' own initiative at the SEC, which of course I was able to help with when I was over there.

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Now we've come together across both agencies to help strengthen our crypto asset industry here in the United States and make sure that something like the prior administration's war on crypto never happens again. But it's really important that we get some legislation in place as well to codify that and solidify our leadership here in the United States on crypto issues.

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Project Crypto and our memorandum of understanding across the agencies are really intended to make sure that the SEC is not doing something completely different from the CFTC when it comes to crypto. We need to harmonize our approach. We need to make sure that when it comes to, for example, decentralized finance and blockchain-based transactions, and the use of stablecoins and Bitcoin as collateral, our approaches are similar.

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We've done so much. I've been in the seat now just over 100 days, and we've harmonized our approach, for example, to the use of different stablecoins and crypto assets as collateral. For margin purposes, our capital requirements are similar. We're really working together to make sure that whether you're dealing in the securities world or in the commodities world, you don't have to comply with different types of standards and inconsistent rules and regulations.

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It's a subtle point that I think is easily lost on people who aren't familiar with legislation. Legislation has a specific purpose. The CFTC's governing legislation is the Commodity Exchange Act. The SEC has the federal securities laws. We've got probably 20 different banking laws and the tax code. Bitcoin can be treated as different things under different legislation, so that harmonization makes it easier for market participants, users, intermediaries, the whole nine yards. It also makes it easier for chairmen if you're working together.

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That's right. We want less friction in our markets. We don't want inconsistent standards because you're dealing in a securities environment versus a commodities environment. Sometimes that makes sense, but where we can harmonize and have things like substituted compliance across the agencies, that's going to be better for market participants and ultimately for the American people.

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You mentioned earlier the taxonomy guidance that you released. Why is that important? It's joint guidance, which was fantastic. But what do you think that unlocks for the broader industry?

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The CFTC came out really early, as we said, and declared Bitcoin to be a commodity. But that wasn't the case with many of these other assets, unfortunately. We saw so many of these novel crypto assets, like ether and Solana and Zcash and so on and so forth. The SEC took the view historically that many of these were securities. That was, of course, challenged in court, and many of these court cases were actually brought because the SEC sued exchanges like Coinbase and Gemini and others.

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We're now coming together to make sure that the two agencies are unified on their approach to what's a security and what's not. That just creates more clarity across the board. So many businesses were afraid to set up here in the United States because they go and issue a token, and the token is characterized as a security, and then they have to go register that. They have to provide disclosures. It becomes very expensive to comply. Clarity really is critical to be able to have surety in your business and understand what your obligations are.

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Of course, the commodities laws are designed for assets like oil and gas and gold and silver, things that aren't based on a centralized issuer or company. Many of these crypto assets, some of them, sure, are tied to a company, but most of them operate in more of a decentralized environment where you're trusting in the code and the network to function. Providing this clarity really is important.

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We've also provided clarity on when you're coming to market with a sale of a new crypto asset. Sometimes the sale itself is subject to the securities laws because you're selling certain promises and commitments together with the asset. But after the asset starts to trade in the market and those promises are no longer attached to the asset, then the asset itself can trade in a commodities market without the disclosure obligations and securities law overlay. That's really important to provide liquidity in the asset class and surety for the American people.

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You've also provided recently guidance for software developers. You mentioned it on the introducing broker no-action letter. Really, fundamentally, that was about protecting devs. I know this is an issue that you're particularly passionate about, but how do we foster an environment in America that ensures that software developers can feel comfortable building here and can maintain this environment where we're protecting self custody and non-custodial services?

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Self custody and software development here in the United States have to be protected. Our country was founded on the idea of private property, and the concept of a government or anybody else trying to seize someone's crypto assets, or debank or choke off access to the financial system, really is something that we've got to guard against.

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Creating safe harbors and clarity for software developers and providers of different types of self-custodial software applications has to be something that we establish here in the United States and focus on as regulators.

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One of the first things that the commission did once I came on board was issue a no-action position when it comes to software services in the self-custodial wallet space. In order to access our derivatives markets, typically you would go through a broker, and the broker would connect into the exchange. That's all done in a custodial way. You're putting up capital, you're putting up margin, and transacting in the derivatives markets in a custodial way.

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We've never had the ability to do so in a self-custodial way, where you hold your own assets and you're moving those assets into the exchange on the basis of your trading activity, and margin can pass between your wallet and the exchange itself. So now we have this new regime where if you're a software developer offering a self-custodial wallet product, that product and the software developer don't have to be registered with the commission, provided that the software development company meets certain standards.

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This will allow for the use of Bitcoin and other crypto assets as collateral in our derivatives markets, and you'd be able to self-custody that, unlike in some of our markets today where you'd go through a custodial wallet provider attached to the exchange. Here you can use your own self-custodial wallet. We think that's really going to help prove out the use case for crypto and blockchain writ large, because the idea was always that you'd be able to hold your own assets and rely on chain technology, to trust in code rather than your intermediaries.

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That's the regulation side. On the legislation side in D.C., all eyes are on CLARITY. I think CLARITY is a very complex topic, but one of the things people should know is that it creates robust regulation on intermediaries, but it also protects the individual right to self custody, it protects software developers, and in practice it ought to be able to grow the industry.

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The CFTC has a really important role in that. Can you talk about how you view CLARITY as an unlock for the CFTC when it comes to Bitcoin and other crypto markets?

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As I said at the outset, I do believe that the United States is the crypto capital of the world today, thanks to the leadership of President Trump, but we've got to keep it that way. It's really important that we get legislation in place that protects software developers, protects the asset class, and sets clear rules of the road. If we don't take this opportunity to put some real statutory guardrails in place, a lot of what we do as regulators can be taken down by the next administration.

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You get a Gary Gensler back in the SEC or the CFTC, and he can undo everything that we've done. That's a real threat to the asset class. Of course, the asset class can function outside of a government apparatus. It's designed to function based on code and all of that. But the reality is that governments have a ton of power, and they can really weaponize law enforcement agencies and regulatory agencies to go after people in this industry. We can't allow that to happen again.

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I think the best way to future-proof the asset class here in the United States is to get legislation in place that clearly declares crypto assets to be legal technology that can be used by everyday Americans in commerce and in finance. That really will set the foundation for this asset class to flourish here in the United States.

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CLARITY brings the regulation of intermediaries up from the state level, where there are 54 different licensing jurisdictions if you want to work across the U.S. and its territories. It seats most of that authority at the CFTC. I think that's a very welcome outcome for market participants.

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That's right. It's absolutely essential if you think about the arc of history for crypto assets. It really started off with all these state regimes. You had the New York BitLicense, and you had all these state money transmitter laws applied to crypto exchanges. They had to go cater to 50 different states and figure out what their obligations were if they wanted to launch an exchange or a custodial wallet, and even some of the non-custodial software providers have had trouble with the states.

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What we're seeing now that we have a more accommodating federal regime for crypto is that the states are turning around and suing a lot of the exchanges. We just saw New York bring litigation against two of our big crypto exchanges here in the United States, and they're really picking up where Gary Gensler and the SEC left off with the lawfare.

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Having a federal regime where you're protected, you've got a federal license, and the states don't have the authority to then come and regulate on the back end of these exchanges and assets is going to be really important for the asset class to work here in the United States.

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We're running out of time, so for the Bitcoiners in the room, the developers, the users, you formed an innovation task force. How should the Bitcoin community think about coming in and engaging with the CFTC?

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It's really important to engage. We want to understand what you're building, what you're doing, what the frictions are in your business, and how we can help. It used to be the case, as I said, where you come in and you get a subpoena, and the government's trying to weaponize the full force of the law against you. That's not what we're trying to do here.

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I've created an innovation task force, and we have a number of leaders from the industry who have come from the private sector to work on these issues from a policy perspective within government. We've also pulled some of the best and brightest within our agencies to help work on these issues. So we invite you to come in and meet with the task force, tell us about what you're working on, and let's find a way to help get your business here in the United States and onshore here for good.

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Chairman, thank you for your public service and your principled leadership. It's an honor to sit with you today and an honor to see you get your work done in D.C.

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Well, thank you. Glad to be here.

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Indeed.