The Foreign Board of Trade (FBOT) framework, intended for traditional financial markets, has proven to be misaligned with the unique needs of cryptocurrency exchanges. According to Eli Cohen, general counsel at a leading tokenization firm, attempts to apply this framework to the crypto sector are misguided and impractical.
The Fundamental Misalignment
The FBOT framework establishes regulatory conditions rooted deeply in the legacy financial system, requiring stringent compliance measures, including settlement and clearing processes that simply do not translate to the fast-paced world of crypto exchanges. Cohen asserts that these regulatory frameworks present significant barriers that many offshore exchanges cannot overcome. He states, “The main problem is that only regulated exchanges outside the United States can apply for the FBOT. So, you need to have an existing regulatory framework in your home country.”
- Only Licensed Futures Commission (FCM) intermediaries can register under FBOT.
- Many crypto exchanges prefer jurisdictions like Seychelles to avoid compliance.
- Crypto regulations are inconsistent and often shift with political administrations.
Cohen believes that the fundamental characteristics of cryptocurrency — decentralization, rapid transactions, and the borderless nature of digital assets — conflict directly with the requirements laid out in the FBOT framework. Such a mismatch can hamper innovation and growth within the industry.
The Need for Comprehensive Crypto Regulation
In light of such challenges, Cohen suggests that a more effective way to regulate crypto exchanges would be through the passage of a comprehensive crypto market structure bill in Congress. This bill would establish clear guidelines and regulations that can benefit both the exchanges and the consumers without the haphazard regulations that often occur with changing political tides.
Moreover, initiatives like the CFTC’s “crypto sprint” aspire to create a cohesive regulatory framework that could promote the United States as a leader in the cryptocurrency space. This means not only creating regulations that are consistent across different governmental agencies but also introducing measures that would foster innovation and consumer protection in crypto markets.
Conclusion: Shaping the Future of Crypto Regulation
For the future of cryptocurrency exchanges to thrive in the United States, it is essential that regulatory bodies adapt to the unique dynamics of the digital asset landscape. A one-size-fits-all approach like the FBOT framework is insufficient, and stakeholders must engage in discussions that forge paths towards robust, adaptable regulations tailored for the fast-evolving crypto market.
