Democrats Push Crypto Rules with CFTC Focus and Ethics Clauses

Senate Democrats have introduced a comprehensive framework outlining key principles for regulating the U.S. cryptocurrency market, aiming to clarify jurisdictional boundaries, enhance investor protections, and address concerns about corruption and misuse of digital assets. The initiative, led by 12 senators including Ruben Gallego (D-Ariz.), Mark Warner (D-Va.), and Kirsten Gillibrand (D-N.Y.), seeks to establish a bipartisan dialogue with Senate Republicans, who previously released their own discussion draft in July.

The Democrats’ framework emphasizes the Commodity Futures Trading Commission (CFTC) assuming exclusive jurisdiction over non-security crypto markets, a move intended to streamline regulatory oversight and reduce uncertainty in the sector. It also calls for the Securities and Exchange Commission (SEC) to integrate digital assets into its existing regulatory regime while establishing a new oversight structure for decentralized finance (DeFi) protocols and platforms. The lawmakers argue that regulatory ambiguity has hindered innovation and exposed investors to risks, including scams and fraud.

A key element of the proposal is the requirement for digital asset platforms to register as financial institutions under the Bank Secrecy Act, which would bring exchanges, custodians, and other intermediaries under the purview of the Financial Crimes Enforcement Network (FinCEN). This measure aims to strengthen anti-money laundering (AML) controls and ensure compliance with sanctions enforcement. The framework also seeks to prevent elected officials and their families from profiting from digital assets while in office, citing concerns about potential conflicts of interest and ethical violations.

The proposal highlights tensions between the two parties, particularly regarding DeFi and the pace of legislative action. While the Democrats advocate for a deliberate, bipartisan process, Senate Republicans have pushed for faster progress, as seen in the House’s passage of the Digital Asset Market Clarity Act in July. The Democrats’ emphasis on ethics and broader regulatory inclusion, however, introduces significant differences from the Republican approach, particularly in the treatment of DeFi and the inclusion of political accountability measures.

The framework aligns with previous bipartisan efforts such as the GENIUS Act, which established a regulatory framework for stablecoins. Unlike the GENIUS Act, which passed with strong Democratic support, the broader market structure bill faces a more complex path, requiring at least seven Republican votes in the Senate to overcome the filibuster threshold. The success of this initiative will depend on the willingness of both parties to reconcile differences over enforcement, DeFi oversight, and the timeline for legislative action.