CFTC historic approval! Spot cryptocurrency exchanges legalized, offshore funds returning

The Acting Chair of the US Commodity Futures Trading Commission (CFTC), Caroline Pham, has issued a new announcement approving the trading of spot cryptocurrency products on federally regulated futures exchanges. This move aims to direct trading activity to US exchanges, rather than offshore exchanges that “lack basic safeguards.” The approval is based on the joint consultation results of President Trump’s Digital Asset Markets Working Group, the SEC, and the CFTC.

Spot Cryptocurrency Included in Nearly a Century-Old Regulatory Framework for the First Time

(Source: CFTC)

CFTC Acting Chair Caroline Pham emphasized that, for the first time, spot cryptocurrencies can be traded on CFTC-registered exchanges, which have been the gold standard for nearly a century, providing Americans with the customer protections and market integrity they deserve. This statement underscores the historic significance of the approval: the regulatory framework established by CFTC-regulated futures exchanges since the 1920s is now officially extending to spot cryptocurrencies.

This regulatory expansion is not a simple administrative permit, but a major shift in regulatory philosophy. In the past, the CFTC mainly regulated derivatives markets (futures, options, etc.), while spot commodity trading was generally outside its direct jurisdiction. However, the unique nature of cryptocurrencies—as both commodities and payment instruments—has blurred the line between spot and derivatives. By including spot cryptocurrencies within the range of tradable products on regulated exchanges, the CFTC is effectively providing crypto markets with the same level of protection as traditional financial markets.

“Customer protection and market integrity” are at the core of this approval. CFTC-regulated exchanges must comply with strict rules: transparent price discovery mechanisms, surveillance systems to prevent market manipulation, segregation of client funds, and regular financial audits. These safeguards are often lacking or poorly enforced on offshore crypto exchanges, leading to frequent customer losses and market manipulation.

Core Safeguards of CFTC-Regulated Exchanges

Price Transparency: All trades are publicly disclosed in real time to prevent covert operations.

Fund Segregation: Client funds are kept separate from the exchange’s own funds.

Manipulation Surveillance: AI systems detect abnormal trading patterns in real time.

Regular Audits: Independent accounting firms regularly examine financial status.

Bankruptcy Protection: Even if the exchange goes bankrupt, client funds are protected by law.

These safeguards have become especially important after the collapse of FTX. As an offshore exchange, FTX misappropriated client funds for risky investments, ultimately leading to bankruptcy and massive user losses. If FTX had been a CFTC-regulated US exchange, such misappropriation would have been detected and stopped by audits immediately.

Trump’s Policy Push and Interagency Coordination Mechanism

This approval was made in accordance with the policy direction of US President Donald Trump. Pham added that the decision was based on the recommendations of the President’s Digital Asset Markets Working Group, communication with the Securities and Exchange Commission (SEC), and consultation outcomes from the CFTC “Crypto Sprint” initiative. This multi-layered decision process shows that legalizing spot crypto trading on exchanges was not a hasty move, but the result of well-considered policy coordination.

The Trump administration’s Digital Asset Markets Working Group is an interagency coordination mechanism, with members including the CFTC, SEC, Treasury Department, and other relevant regulators. Its main task is to coordinate policies among different agencies and avoid regulatory gaps or overlaps. In the crypto field, there has been a long-standing jurisdictional dispute between the CFTC and SEC: the CFTC claims cryptocurrencies are commodities under its purview, while the SEC believes many cryptocurrencies meet the definition of securities and should be under its jurisdiction.

This approval shows that the CFTC has achieved a significant victory in this jurisdictional competition. Although the specific division of regulatory responsibilities still awaits clarification by the market structure bill, the CFTC’s proactive approval of spot crypto trading amounts to “seizing the high ground.” Once the market becomes accustomed to trading spot crypto on CFTC-regulated exchanges, it will be much harder to change this arrangement in the future.

The CFTC “Crypto Sprint” program is another key factor. This initiative has, over the past several months, intensively consulted with industry participants, legal experts, and technical specialists, gathering extensive advice on how to safely integrate spot cryptocurrencies into regulated exchanges. This broad consultation ensures the decision is not made behind closed doors but reflects real industry needs and technological feasibility.

Bitnomial Launches Next Week, US Largest Compliant Crypto Exchange Poised to Join

Bitnomial is expected to be among the first derivatives exchanges to launch trading, scheduled for next week. The exchange has already obtained CFTC authorization as a Designated Contract Market (DCM). While Bitnomial is less well-known than the largest compliant US crypto exchange, its focus on compliance gives it an excellent reputation with regulators. Choosing Bitnomial as one of the first platforms to go live shows that the CFTC hopes to test the new rules on a smaller scale first, ensuring system stability before expanding to larger exchanges.

The largest compliant US crypto exchange also obtained DCM status in 2020, meaning it is already permitted to operate under the CFTC regulatory framework. However, the largest compliant US crypto exchange has yet to announce when it will begin offering CFTC-regulated spot crypto trading services. As the largest and most compliant US crypto exchange, its participation will significantly boost trading volume and influence in the CFTC-regulated spot market.

Compared to offshore exchanges, CFTC-regulated exchanges offer not only greater security but also legal certainty. Trading on a regulated US exchange means investors’ rights are protected by federal law. If disputes or losses occur, investors can seek recourse through US courts. In contrast, when problems arise with offshore exchanges, investors often have nowhere to turn, as such platforms may be registered in lax jurisdictions and lack effective dispute resolution mechanisms.

Initial Launch Timeline

Bitnomial: Launching next week (second week of December)

Largest Compliant US Crypto Exchange: DCM status obtained, launch date TBD

Other Exchanges: Applications and approval processes ongoing

This phased rollout strategy is wise. The CFTC can monitor operations on smaller platforms in the early stages, identify and resolve potential issues, and then approve the participation of larger exchanges. This gradual approach reduces systemic risk while giving the market time to adapt to new rules.

Market Structure Bill to Clarify CFTC and SEC Jurisdiction

The US Senate will soon advance a digital asset market structure bill, which is expected to clarify the respective regulatory responsibilities of the CFTC and SEC in the crypto space. The draft framework will grant the CFTC greater authority over digital assets. This legislation is crucial for the long-term development of the crypto industry, as it will end years of regulatory uncertainty.

Currently, the regulatory gray area is one of the biggest pain points for the crypto industry. Companies do not know whether to seek licenses from the CFTC or SEC, and different regulators sometimes make conflicting rulings on the same conduct. This uncertainty deters institutional investors and increases compliance costs for businesses. Once the market structure bill is passed, it will provide a clear regulatory roadmap, enabling companies to plan their operations and seek licenses with confidence.

According to the leaked draft, the CFTC will primarily regulate spot and derivatives trading of cryptocurrencies classified as commodities (such as Bitcoin and Ethereum), while the SEC will continue to regulate the issuance and trading of tokens that meet the definition of securities. This division is based on asset characteristics rather than trading methods, providing a relatively clear standard.

Apart from the pending Michael Selig nomination being considered by the Senate, there are four vacancies on the CFTC leadership team. As of Thursday, Trump has not announced any potential successors for regulatory agencies. These vacancies may temporarily impact the CFTC’s decision-making efficiency but also provide an opportunity for new leadership to reshape the regulatory framework in line with the Trump administration’s vision.

A Major Migration of Funds from Offshore to Onshore

CFTC Acting Chair Caroline Pham stated that this move aims to direct trading activity to US exchanges, rather than offshore exchanges that “lack basic safeguards.” Achieving this policy goal could trigger the migration of hundreds of billions of dollars in funds. Currently, many US investors access offshore exchanges via VPNs because those platforms offer more trading pairs, higher leverage, and lower regulatory restrictions.

However, the risks of offshore exchanges are becoming increasingly recognized. The collapses of FTX, Celsius, Three Arrows Capital, and other offshore entities have wiped out tens of billions in client funds. In contrast, while US CFTC-regulated exchanges may not be as aggressive in functionality as offshore platforms, there is a qualitative difference in terms of safety and reliability.

Once US exchanges begin offering regulated spot crypto trading, compliance-conscious institutional investors and high-net-worth individuals will migrate en masse to domestic platforms. This migration is not only a transfer of funds, but also a shift in market dominance. The US will move from the periphery of crypto trading back to the center of the market. For the global crypto industry, this could be one of the most profound structural changes ever.