US CFTC Proposes Regulatory Framework for Crypto Leverage
The U.S. Commodity Futures Trading Commission (CFTC) released a notice of proposed rulemaking on Monday, aiming to establish a regulatory framework for cryptocurrencies using existing powers under the Commodity Exchange Act, filling the legislative gap left by Congress. Two parallel paths are proposed: Regulation CTX governs the trading itself, while Regulation CAM oversees the companies facilitating the trades, introducing a new category of platform called the crypto asset market.
The jurisdictional hook is retail commodity trading under Section 2(c)(2)(D) of the Act. Crypto activities involving leverage, margin, or financing are included in the regulation; traders using borrowed funds to amplify positions will fall under these rules. The agency does not set a specific leverage cap, but any platform offering leveraged trading must submit products for staff review. New platforms will also be subject to anti-manipulation controls and reserve proof obligations, with customer trades intermediated by registered futures brokers.
This is not a mandatory rebranding for the entire market. Chairman Michael Selig stated at a blockchain regulation seminar at Fordham Law School in New York that the rules provide a pathway for trading platforms to operate under a unified national regulation by the CFTC, using the same statutory powers relied upon by the previous administration for enforcement. He emphasized that the goal is to prevent fraud similar to FTX beforehand, rather than just prosecuting afterward. Exchanges registered as designated contract markets can conduct such trades under customized rules; companies focused solely on crypto can opt for standard registration or pursue the new crypto asset market category.
Spot trading remains outside the jurisdiction. The CFTC does not have comprehensive regulatory authority over trades of Bitcoin, Ethereum, and others at market prices without leverage or margin, and can only continue to combat fraud and manipulation. The rules do not replace state money transmission regulations. Officials indicated that companies wishing to create more complex products should operate on CFTC-regulated platforms; they are unclear about the remaining pure spot market size before the 60-day public comment period ends, but hinted that users may prefer to stay within the federal regulatory space.
This action follows the Senate's failure to advance the CLARITY Act, which could have established new rules for the approximately $2 trillion crypto market. Unlike the bill, CTX and CAM do not require all crypto assets to be traded on CFTC-registered platforms, as this cannot be done without Congressional authorization. Earlier this year, a joint interpretation by the CFTC and the SEC classified a large category of assets, including Bitcoin and Ethereum, as non-securities, falling under CFTC jurisdiction. Comments must be submitted in writing within 60 days after publication in the Federal Register.
This is license-driven rather than price-driven. Buyers are retail users wanting leverage and platforms hoping to replace multiple state licenses with a federal license, while sellers are exchanges relying on state money transmission licenses for pure spot trading. Money will not move due to the notice itself, but the flow of leverage and margin may concentrate on platforms that accept reserve proof and have futures brokers as intermediaries. Beneficiaries will be institutions with designated contract market licenses that can quickly expand crypto margin operations; those under pressure will be offshore high-leverage platforms and state-licensed exchanges that only do spot trading without federal endorsement.
Source: Public Information
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The CFTC's approach is not a new invention. Since 2014, it has regulated Bitcoin derivatives under the commodity definition, and after the FTX collapse in 2022, customer assets in registered subsidiaries were preserved due to segregation arrangements, while unregistered spot platforms mixed customer funds with proprietary positions. The previous commission primarily relied on enforcement letters and settlements to push offshore leveraged platforms into U.S. regulations, and Selig's current proposal effectively changes the approach from "penalize first, regulate later" to "register first, then leverage" by writing the same Section 2(c)(2)(D) of the Commodity Exchange Act into a pre-rule.
The flow of money and licenses is very specific. Platforms that only conduct unleveraged spot trading can remain under state money transmission licenses; once they offer margin to retail customers, they must enter the crypto asset market or designated contract market, with futures brokers interposed between customers and platforms. This will shift customer margins from the platform's proprietary accounts to the broker's segregated system, and reserve proof will turn reserves from internal reports into verifiable liabilities. The motivation is to preemptively contain the most vulnerable segment after the CLARITY Act stalled in the Senate, rather than waiting for Congress to rewrite the entire structure of the $2 trillion market.
The analogy is to the mandatory clearing of swaps after the Dodd-Frank Act in 2010, rather than the SEC's enforcement wave against token issuances. At that time, swaps were not banned but pushed towards central clearing and trade reporting, concentrating market maker shares among existing futures clearing members. Crypto is currently in a control phase rather than an expansion phase: Bitcoin and Ethereum have been classified as non-securities by joint interpretation, and the remaining competition is about who can legally sell leverage, not who can legally exist.
Structurally, this represents a jurisdictional split in regulatory changes. Spot pricing power remains scattered among state licenses and offshore platforms, while leverage pricing power shifts to the federal registration level. The mechanism is that statutory authority only covers "financing retail commodity transactions," so the commission cannot mandate all spot trading but can allow those wishing to amplify positions to voluntarily exchange for a national license. The result is two sets of markets for the same token: a non-leveraged state law market and a federal market with margin, segregation, and reserve proof.
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