Opinion CFTC is expecting a Flood of Crypto Clearinghouse Application

CFTC is expecting a Flood of Crypto Clearinghouse Application

May 5, 2019

The US Commodity Futures Trading Commission or the CFTC is one of the key institutions related to crypto. This goes now just for the US but for the entire world as well. In fact, it could be argued that it is right now one of the biggest gatekeepers for the price of the BTC in the coming months if not even years.

Naturally, this is not a coincidence. As a regulatory body of the biggest economy in the world, many look to CFTC as a wind gauge for the changes most countries, at least in the western domain, will undertake after it. Besides, it is a single entity that can make or break digital ventures like startups and other companies looking to get their business to the financial market.

Recently, this agency stated that it is expecting a huge influx of regulatory demands from so-called clearinghouse businesses. This could impact not just the crypto domain in the US, but also have some profound effect on the crypto market across the globe. Here is the issue of the clearinghouse companies and how these less-know ventures could be so important for the state of crypto in 2019.

CFTC Outlook on Crypto Clearinghouses

Recently, the CFTC stated that more and more companies are applying to become clearinghouses in a federally-regulated environment. According to the agency, this is the result of a growing interest in all manner of cryptocurrencies. This statement came from Chairman J. Christopher Giancarlo. He was testifying before the US House of Agriculture Committee and was talking about the state of the CFTC.

In his words, the clearinghouses are the critical point for the global financial system as they represent the chain link where issues can arise. All of this is happening, according to Giancarlo, in a system that is becoming more and more complex. Clearly, he sees the crypto domain as another new element of the same setup that simply was not there only a decade ago.

Of course, knowing the approach that the CFTC took in the previous period, including the issues that came about from the recent government shutdown, there is little doubt that this change is perceived in a negative light. But at this point, it appears that the agency will focus on the clearinghouses and their role in this new environment.

Concept of a Clearinghouse

This term depicts a financial institution that has the role of facilitating the transactions between two parties. Clearinghouses act as intermediaries and they are there to ensure that trust is present on both ends. Giancarlo explained that the CFTC regularly examines the same entities so that it can identify any possible problem or issues with their operations.

This is mainly related to their ability to monitor and control the risks that appear with their activity. Now, with the crypto element to the story, the relevance of examining these entities is only increasing. Otherwise, the financial stability of the companies and also the system as a whole will be put in jeopardy. Right now, the agency has already regulated a range of clearinghouses in the US and half a dozen located overseas.

It has also exempted for clearing houses that are foreign. The number will continue to grow according to Giancarlo. This is especially true because of the introduction of cryptocurrencies. He believes that the commission is anticipating applications for those clearinghouses that cover cryptocurrencies like the very popular bitcoin. He thinks that the explosion in interest in this form of value in the recent period resulted in this trend. However, he also feels that the protection of the cryptocurrency clearinghouses and their customers will include tackling the highest risks.

Existing Crypto Clearinghouses

LedgerX is a crypto derivatives provider that is already working as a clearinghouse. ErisX and other similar platforms are waiting for the moment to get their applications approved by the CFTC. When these attain their DCOs, or derivatives clearing organizations, they will be able to start working as these comply otherwise do. However, the process leading to DCOs is not that easy, as previous experience clearly showcases.

Furthermore, there is no clear showcase who long the length of this process usually takes for crypto clearinghouse businesses. Because of that, many companies are dug in for an approval process that could last months if not years.


During this address, Giancarlo also talked about the LabCFTC. This is the regulatory body’s fintech research group that is up and running. Its purposes are to create research on the fintech and other financial advancements that are changing the entire marketplace. In this regard, he highlighted both cryptocurrencies and blockchain, labeling them as rapidly changing markets, as well as ongoing tech developments. He said that the LabCFTC was able to organize their data in a way that helped the agency prioritize its regulatory response.

This allowed the agency to also remain independent of any market intermediaries. Giancarlo pointed out that the research division was able to determine the value of other tech innovation. One of the biggest examples is the crypto-based futures products. Like with any digital venture, including social media and esports, the value and potential are hard to gauge in different phases of their development. The agency hopes that LabCFTC will be able to drastically help with this and Giancarlo thinks this is already ongoing.

Critical Thinking

In spite of the LabCFTC and the stance of the agency chairman, there is a sense that CFTC is making a critical error. Mainly, based on its current behavior, the approach seems to be a merger of kicking the can down the road and trying to be as tough as possible on the same crypto ventures. This is simply stifling growth across the board in the US and it is an open question how much does it protect the consumers.

In this setup, the presence of LabCFTC seems like a strange ace in the sleeve that can be taken as an objective gauge of whatever the agency wants to think. It is difficult to imagine the research division taking a drastically different stance than the agency that has created it. The same applies to clearinghouses. Thanks to that, most are expecting to see the next wave of application have a really hard time with the CFTC.