CFTC and SEC join forces on ‘Project Crypto’ to modernize rules as Congress works on digital asset legislation

The Commodity Futures Trading Commission is joining forces with the Securities and Exchange Commission on “Project Crypto,” an initiative aimed at modernizing cryptocurrency regulation.

In prepared remarks on Thursday at the “Joint CFTC-SEC Harmonization Event,” SEC Chair Paul Atkins announced that the initiative would be a joint effort.

“As many of you know, today’s markets do not divide neatly along regulatory lines,” Aktins said. “Trading, clearing, custody, and risk management now flow across asset classes, technologies, and platforms. So, fragmented regulation in an integrated market is not a safeguard for investors so much as a source of confusion among them.”

Just a year ago, the CFTC and SEC were perceived as being in a “turf war” over digital assets. Former CFTC Chair Rostin Behnam argued that most cryptocurrencies fell under the agency’s commodity jurisdiction, while former SEC Chair Gary Gensler maintained that — with the exception of bitcoin — most tokens were securities.

That dynamic shifted in September when then Acting Chair of the CFTC, Caroline Pham, declared that the turf war was over and said the agencies would be working together on regulating crypto.

CFTC Chair Michael Selig, who assumed the role last month, is making one of his first public appearances at the event.

“Rather than running a parallel initiative with the SEC, I am pleased to announce that the CFTC is partnering with the SEC on Project Crypto — bringing coordination, coherence, and a unified approach to the federal oversight of crypto asset markets,” Selig said in prepared remarks.

Selig said he has directed his staff to work with the SEC to consider “joint codification” of Atkins’ proposed taxonomy, which looks to delineate between what cryptocurrencies would be securities, as an “interim measure while Congress finalized legislation.”

Congress closing in?

Congress has hit some roadblocks in passing legislation to regulate crypto market structure, a move that could bolster the CFTC’s authority while also divvying up jurisdiction to the SEC.

The Senate Agriculture Committee advanced its digital asset bill along partisan lines earlier on Thursday, while its counterpart in the Senate Banking Committee still has to hold a hearing to move its bill following major disagreements over the treatment of stablecoin yield.

Selig commented that Congress is close to passing crypto legislation on Thursday.

“The U.S. is now the crypto capital of the world,” Selig said. “But we cannot assume this will always be the case. America’s financial regulators must modernize and harmonize their approach to regulation to future-proof our markets for the innovations of tomorrow. And, while market structure legislation will certainly advance these goals, we cannot and will not let this opportunity pass us by while Congress continues its work.”

Atkins told The Wall Street Journal in an article published on Thursday that in the longer term it is better to have a bill, but also said “we can make do with our authority.” The Journal also reported in its interview with Atkins and Selig that both the SEC and CFTC plan to sign a “memorandum of understanding to formalize their cooperation.”

Prediction markets

Selig also said he plans to make moves when it comes to approaching the regulation of prediction markets. He said he directed his staff to withdraw a rule proposal from 2024 that would ban political and sports-related event contracts, as well as a 2025 advisory that issued caution around sports-related event contracts.

“While the advisory was issued at the staff level with the intent of bringing awareness to the litigation, it has instead contributed to uncertainty in our markets,” Selig said.

Prediction markets such as Polymarket and Kalshi have surged in popularity over the past year, following a period of rapid adoption during the 2024 election cycle.

Former CFTC Chair Behnam had warned of risks in prediction markets when it comes to waging bets on elections and said that election contracts should be done at the state level, not put the CFTC in charge of overseeing them. The CFTC previously barred Polymarket from serving U.S. users for operating as an unlicensed binary options trading platform, a move that was repealed last year.

Meanwhile, under the Trump administration, the commodities watchdog agency has granted several firms the go-ahead to enter the prediction markets arena, including Gemini Titan, Polymarket US, MIAX Derivatives Exchange, and, more recently, Bitnomial. The Trump-backed Truth Social is also exploring predictions capabilities via a Crypto.com partnership.

Selig said he asked the CFTC staff to draft rulemaking for event contracts.

“For too long, the CFTC’s existing framework has proven difficult to apply and has failed our market participants,” Selig said. “That is something I intend to fix by establishing clear standards for event contracts that provide certainty to market participants.”