Since further enforcement actions are likely in the near future, analysts predict that U.S. regulators will be considering whether to enact new regulations that might include cryptocurrencies.

Both the Securities and Exchange Commission and the Commodities Futures Trading Commission have had a busy year, considering regulations that may limit the industry in addition to filing charges against some of the largest cryptocurrency exchanges, such as Binance, Kraken, and Coinbase.

While the SEC hasn’t put out any regulations specifically pertaining to cryptocurrencies, it is considering two that might be adopted in 2019. Following the demise of the cryptocurrency exchange FTX, the CFTC has decided to draft a rule that would strengthen consumer protections. This vote took place in December.

The Block broke down the regulations these agencies will probably focus on in 2024 by speaking with experts.

The SEC’s priorities
Despite opposition from the industry, SEC Chair Gary Gensler has persisted in stating that the majority of cryptocurrencies are securities and has urged cryptocurrency exchanges to register with the organization.

According to Tyler Gellasch, CEO of the investor-focused Healthy Markets Association, “on crypto broadly, a lot of general crypto does seem to follow in the gambit of the securities laws from the SEC’s perspective, so I don’t think there are a lot of new regulations coming from the SEC on that front.” “I just think they’ll keep doing what they do, which is probably bring a lot of enforcement cases.”

Two rules that the SEC recently suggested could be adopted: one would require custodians, and the other would expand the definition of an exchange to include decentralized exchanges.

I anticipate that both of things will be resolved in one way or another. As they are completed, we’ll see how much they impact cryptocurrency,” Gellasch stated.

SEC Chair Gensler’s decision to complete those regulations is especially crucial in light of the impending elections, according to Linda Jeng, a Web3 advisor for the Crypto Council for Innovation. Jeng has also held positions in the Treasury Department, the SEC, and the Federal Reserve Board of Governors.

The custody rule of the SEC
The SEC decided to propose a regulation in February that would mandate that cryptocurrency holdings by registered investment advisers be kept with a qualified custodian, subject to certain standards being met by the custodian.

A custody rule that mandates that registered investment advisers keep those assets with a certified custodian—such as a bank or broker-dealer—applies to them. This could now apply to cryptocurrency under the rule, which hasn’t been revised since 2009. Investment advisers should not depend on cryptocurrency platforms as competent custodians, according to SEC Chair Gensler, given the way these platforms function.

According to Jeng, there aren’t many custodians who are proficient in handling digital assets. “So then you’re forcing… the industry to use custodians that probably don’t have the requisite expertise,” Jeng stated. “And that’s a problem.”

According to Jeng, the law may potentially result in concentration among a small number of registered custodians, raising concerns about systemic financial stability.

The ATS rule from the SEC
Additionally, the SEC proposed a regulation in January 2022 that broadens the definition of an exchange to include decentralized exchanges. The rule was reopened for comments in April. In the end, the regulation might mandate that decentralized initiatives register as alternative trading platforms with the agency.

According to Healthy Markets’ Gellasch, under ATS, DeFi initiatives would be subject to mandatory disclosure requirements, stringent operational restrictions, and frequent SEC filing requirements.

“The industry built and grew without regard to the securities laws, so if the SEC were to adopt rules that would make them have to comply, their ability to operate would likely go very low very quickly,” Gellasch stated.

In part, the regulation would likely “destroy” decentralized exchanges because being centralized would be the only way to comply, Jeng of the Crypto Councils stated.

CFTC’s most recent proposed rule
The CFTC decided in December to propose a rule that would strengthen client safeguards for those who make trades through a derivatives clearing agency, slightly over a year after the collapse of the FTX cryptocurrency exchange.

The agency-registered DCOs that clear trades would have to keep client assets—including those from ordinary investors—separate from their own house funds under a new rule known as the “Protection of clearing member funds held by derivatives clearing organizations.”

In the coming year, Gellasch suggested, the agency might wish to concentrate on the spot markets.

“From the CFTC, there is quite a bit they might want to do, most notably focusing on how much they can get access to the spot markets,” Gellasch stated.