CFTC Chairman Mike Selig on crypto, prediction markets and AI-powered market surveillance

**Mike Selig** (0:00)
They say diamonds are forever, but in Washington, legislation is the most permanent thing, so we're very excited to hopefully get clarity across the line. But in the meantime, we're working to get rule makings in place, and rule makings offer a fair amount of certainty in the market. So we're working quickly to codify clear rules of the road for the asset class, and hopefully get some legislation in the near future as well.

**SPEAKER_2** (0:27)
So, our guest, Mike Selig, has had a whirlwind four months. It's hard to believe that he's only, really got started in his role as chairman of the Commodity Futures Trading Commission at the start of the year. I'm sure it feels a lot longer than that. And while the agency does have its sort of traditional vast footprint in global finance, the crypto industry, and its cousin sector, the prediction markets, have been an outsized draw on his attention. So welcome to Consensus, Chairman Selig.
Let's get right into the area that may be the biggest ticket crypto action at CFTC to date, and that's your guidance from April that spells out a new crypto taxonomy, which is the stance that explains how to place crypto assets somewhere in five regulatory buckets to help the audience. That's digital commodities, digital collectibles, digital tools, stable coins, and digital securities. I get that right?

**Mike Selig** (1:30)
That's right.

**SPEAKER_2** (1:31)
Okay. And before CFTC, you also worked on the SEC's Crypto Task Force, which did this jointly with the CFTC. So how big a deal is this initiative?

**Mike Selig** (1:41)
I think this is a massive shift in the regulatory landscape for crypto.
For so long, market participants have been afraid to build here in the United States, and part of the reason for that has been the lack of clarity both around the asset types, what's a security, what's not, as well as how to offer these assets in the United States. The Howey Test has been the bane of everyone's existence in the United States in this industry. And we finally put that to bed. So Chairman Atkins has really been a leader in crypto at the SEC, and I've decided to work together with him. Of course, it was a great opportunity to join forces on this issue. We've joined forces both on Project Crypto, which is kind of our approach to harmonizing and modernizing our regulatory framework with respect to crypto, as well as this joint initiative that both agencies have codified through rulemaking. And that makes it a little bit harder to undo, which I think is really an important thing. As a joint measure, both agencies have signed on, and so both agencies would have to disapprove if we were to remove this in the future.

**SPEAKER_2** (2:42)
That's an interesting observation. So I think it's safe to say that these legal definitions have been sort of a holy grail of crypto frustration, getting the assets defined as belonging of which jurisdiction between the two agencies. But can you give us a sense then of, with that being said that it's a joint approach, what is sort of the durability of these ideas as guidance and not something more permanent?

**Mike Selig** (3:13)
Yeah, that's right. We have legislation on the one end of the spectrum, rulemaking next to that, and then on the other end, kind of staff discretion, no action letters, interpretations, guidance, what I call staff lore.
And that stuff on the one end, right, is really not something that's lasting. As you move towards rulemaking a bit more lasting, especially when it's joint, it's much harder to get multiple agencies to undo something. We saw with Dodd-Frank plenty of joint rulemakings or many agency rulemakings even beyond just two.
And then we saw legislation, of course. And legislation in Washington is about as permanent as you can get. You know, they say diamonds are forever, but in Washington, legislation is the most permanent thing. So we're very excited to hopefully get clarity across the line. But in the meantime, we're working to get rulemakings in place, and rulemakings offer a fair amount of certainty in the market. Of course, we've now clarified what's the security, what's not, what sorts of offerings of crypto assets in the investment contract would be subject to registration with the SEC. When does the crypto asset kind of separate off from that investment contract, which is really important for secondary markets. So we're working quickly to codify clear rules of the road for the asset class, and hopefully get some legislation in the near future as well.

**SPEAKER_2** (4:33)
So there's obviously a ton of topics to get into with crypto policy. In many cases, we'll be really, as you suggested, talking about both the CFTC and SEC doing things together because of the harmonization efforts of the agencies.