Regulators Redefine Crypto Rules: Funds Face Dual Compliance Maze

With the U.S. regulatory framework evolving rapidly, the classification of digital assets such as Bitcoin and Ethereum as commodities has placed crypto funds under the jurisdiction of the Commodity Futures Trading Commission (CFTC). This shift means that fund managers who engage in trading crypto derivatives—such as futures, swaps, or perpetual contracts—must now consider the regulatory obligations under the Commodity Exchange Act (CEA) and the CFTC’s oversight, alongside existing Securities and Exchange Commission (SEC) rules for investment advisers [1].

The CFTC primarily regulates commodity derivatives markets, including futures, options, and swaps on commodities, and it now increasingly applies this authority to crypto derivatives. However, the CFTC’s jurisdiction over spot markets is limited to cases involving fraud or manipulation [1]. This distinction is critical for crypto fund managers: if their activities involve spot trading without derivatives, they may not be considered a Commodity Pool Operator (CPO) and might avoid the need for CFTC registration. Conversely, funds trading crypto derivatives—even as part of a diversified strategy—may fall under CEA jurisdiction and must comply with CPO and Commodity Trading Advisor (CTA) requirements [1].

The regulatory landscape is further complicated by overlapping SEC oversight. If a crypto fund trades securities tokens or functions as an investment adviser, it must comply with SEC regulations. The distinction between commodities and securities remains fluid, with the SEC pursuing enforcement actions against multiple crypto assets. However, recent statements from CFTC Acting Chairman Caroline Pham indicate a growing trend of classifying most native blockchain coins, non-yield-bearing stablecoins, and utility tokens as commodities [1].

Registration requirements for CPOs and CTAs are rigorous. Managers must file Form 7-R and Form 8-R with the National Futures Association (NFA), pass background checks, and potentially take exams like the Series 3 or Series 31. A CFTC-compliant Disclosure Document must also be prepared and approved by the NFA before being used with prospective investors. These documents must be updated at least annually and provide comprehensive details about the fund’s trading strategy, risk factors, and fees. CPOs must submit Form CPO-PQR, while CTAs must file Form PR, both of which support ongoing regulatory oversight [1].

Exemptions exist for certain crypto fund managers, notably the de minimis exemption under Rule 4.13(a)(3) and the Qualified Eligible Person (QEP) exemption under Rule 4.7. The de minimis exemption applies to funds limiting their commodity trading to a small percentage of net asset value and targeting accredited investors. The QEP exemption allows for more active commodity trading but requires that participants be institutional investors or high-net-worth individuals with experience in commodities. These exemptions, however, do not relieve funds from CFTC anti-fraud provisions or recordkeeping requirements [1].

Marketing and investor restrictions remain in place even under these exemptions. Fund managers must avoid misleading statements and ensure that offering materials include appropriate risk disclosures. Additionally, they must maintain detailed books and records, which are subject to periodic NFA examinations. These compliance demands are not optional but essential, as the CFTC and NFA continue to increase their scrutiny of crypto derivatives markets [1].

Structuring a crypto fund in a compliant manner requires careful consideration of trading strategy, investor eligibility, and jurisdictional implications. Funds trading only in crypto spot markets may avoid CPO and CTA obligations, but those engaging in derivatives face a high likelihood of being classified as commodity pools. Hybrid funds that trade both securities and commodities must navigate dual regulatory frameworks, often necessitating coordinated compliance strategies between the SEC and CFTC [1].

State securities regulators are also asserting a growing presence in the crypto space, as evidenced by the North American Securities Administrators Association (NASAA) advocating for the preservation of state enforcement authority. NASAA has submitted comments to federal legislative proposals such as the CLARITY Act and the Responsible Financial Innovation Act (RFIA), emphasizing the need to maintain broad state antifraud enforcement capabilities. This evolving regulatory landscape underscores the complexity faced by crypto fund managers who must balance compliance with innovation [3].

For crypto fund managers, the key takeaway is that regulatory obligations are no longer optional. Proactive compliance—whether through full CFTC registration or appropriate exemptions—is essential. With enforcement actions increasing and legislative activity ongoing, early structuring decisions can significantly impact a fund’s operational flexibility and regulatory exposure. As the CFTC and NFA continue to expand their oversight, managers must ensure that their operations align with the CEA framework to avoid costly enforcement actions and operational disruptions [1].

Source:

[1] Navigating CFTC Regulations for Crypto Funds (https://kelman.law/navigating-cftc-regulations-for-crypto-funds/)

[2] Commodity Futures Trading Commission | CFTC (https://www.cftc.gov/)

[3] State Securities Regulators Stake a Claim in Crypto Asset Markets | Insights | Sidley Austin LLP (https://www.sidley.com/en/insights/newsupdates/2025/08/state-securities-regulators-stake-a-claim-in-crypto-asset-markets)