SEC and CFTC advance crypto regulation as offshore markets grow

While crypto market structure legislation sits in summer recess limbo, the SEC and CFTC are getting a head start on writing the rules for the $2.5 trillion industry.

Both agencies are pressing ahead with several crypto-related initiatives, including a fresh look at derivatives and a rewrite of the SEC’s crypto custody rules.

First up: Derivatives.

In June, the agencies asked for public input on how swaps, security-based swaps, and novel or emerging products should be defined and where SEC and CFTC jurisdiction should begin and end.

Now, a bipartisan group of former SEC and CFTC officials is weighing in, warning that getting those lines wrong could continue driving lucrative markets overseas.

In a new comment letter, former CFTC Chairman Chris Giancarlo, former CFTC Commissioners Brian Quintenz and Sharon Brown-Hruska, former SEC Commissioner Steven Wallman and former SEC Chief Economist Chester Spatt argue that similar risks should face similar regulatory treatment and overlapping rules shouldn’t pile on additional compliance costs.

The bipartisan makeup is notable at a time when neither agency has bipartisan representation. The signatories argue these aren’t inherently partisan questions, pointing to longstanding common ground between commissioners of both parties on protecting investors and keeping U.S. markets competitive.

The issue is particularly relevant for crypto as the CFTC looks to bring perpetual futures onshore, a market some signatories have individually argued U.S. regulation has largely driven overseas. Earlier this month, President Donald Trump said CFTC Chairman Michael Selig is working to bring popular offshore perps platform Hyperliquid into the United States.

Prediction market platform Kalshi, which began offering crypto perps earlier this year, estimates offshore perpetuals trading topped $90 trillion in 2025, up from around $28 trillion two years earlier. Kalshi sponsored the letter by retaining law firm Bellementis PLLC to help with drafting, though the signatories say they weren’t compensated and the company had no say over its contents.

Prediction market platform Kalshi, which began offering crypto perps earlier this year, estimates offshore perpetuals trading topped $90 trillion in 2025, up from around $28 trillion two years earlier. Kalshi sponsored the letter by retaining law firm Bellementis PLLC to help with drafting, though the signatories say they weren’t compensated and the company had no say over its contents.

The core message: regulation can push trading elsewhere, but it doesn’t make the demand or the risk disappear. And time is of the essence.

“The $90 trillion offshore perpetuals market isn’t a mystery to solve, it’s a market waiting for a sensible U.S. rulebook,” Giancarlo told Crypto In America. “If we calibrate federal regulation to actual risk instead of maximum burden, that liquidity comes onshore. Every year we wait, it gets harder to bring to America.”

Over at the SEC, custody is back in focus.

Last week, the SEC sent a planned rewrite of its custody rules for investment advisers and investment companies to the White House Office of Information and Regulatory Affairs (OIRA) for review.

The planned rule is expected to tackle a question the crypto industry has sought clarity on for years: How can SEC-regulated investment firms provide custodial services for digital assets while complying with federal securities laws? This is particularly relevant for investment advisers, who are required to use “qualified custodians” which meet strict standards for safeguarding and accounting related to customer assets.

The text isn’t public yet, so details on which firms could qualify as crypto custodians or what requirements they would have to meet remain unclear. What is clear is that the SEC says it wants to clarify the rules around crypto custody while stripping out provisions it considers outdated.

That marks a notable change in direction from the agency’s previous attempt to tackle the issue three years ago, when then-Chairman Gary Gensler proposed a sweeping “safeguarding” rule that would have expanded existing adviser custody requirements beyond funds and securities to virtually all client assets, including crypto.

The Atkins SEC scrapped that proposal last year.

Meanwhile, the SEC’s “Reg Crypto” proposal, which would establish new rules for certain crypto asset offerings, has officially hit the Federal Register and is open for public comment until October 20.