Key Takeaways:
The CFTC is drawing a clear distinction between digital asset markets and traditional commodities. Speaking at the American Cotton Shippers Association convention, Chairman Michael Selig said perpetual futures and 24/7 trading work for crypto but are not appropriate for agriculture.
His comments offer a new perspective on the regulator’s future approach to crypto derivatives.
The Commission recently gave approval to such narrowly-drafted perpetual futures contracts for Bitcoin and certain digital assets, said Selig. Perpetual contracts are not limited, but they continue to trade from day to day. They are priced around the same as spotting markets via funding channels.
Selig says the products are suitable for what he describes as depth, liquidity and frequent price action in the spot market for an asset that is a crypto asset.
The CFTC Chairman emphasized that these approvals should not be viewed as a universal model for all commodities. “What works for crypto assets may not be suitable for traditional asset classes,” he said.
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Agricultural markets are vastly different from the trade of digital assets, Selig repeatedly said.
Farm products depend on seasonal harvests, short trading times and delivery. Another set of risk management tools that producers rely heavily on are those that relate to the actual demand and supply and come from the real world.
The chairman said that products like cotton, cattle or grain aren’t the natural types for trading on and standing forever. He further said the agricultural contracts should work during the season as usual.
The CFTC has also urged the market to contact the agency with regards to introducing perpetual products in the market beyond the crypto space.
The comments were intended to instill confidence into farmers and commodity producers that a recent approval to cryptocurrencies will not have an automatic impact upon current markets.
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Selig also held up prediction markets as proven commodities capable of mitigating risk and increasing the competitiveness of markets.
He said these products can work effectively when designed properly and when exchanges consider the needs of specific industries. The chairman again rejected a “one-size-fits-all” approach to financial innovation.
Much of the speech centered around agriculture, but Selig underscored the importance of blockchain and digital assets to financial innovation. Regulators shouldn’t turn their backs on new technologies because they are different from their traditional counterparts, he said.
His remarks come as Congress grapples with digital asset market structure legislation that would expand the CFTC’s oversight of cryptocurrencies even more.
The speech suggests that while traditional commodity markets have different regulations, the crypto industry should be subject to rules governing perpetual futures, digital asset derivatives, and blockchain-based financial products.
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