# U.S. Regulatory Agencies Forge Ahead on Crypto Frameworks Amid Congressional Recess
Federal financial regulators are making significant strides on cryptocurrency governance, even as lawmakers remain in summer recess without action on comprehensive market-structure legislation. Both the Securities and Exchange Commission and the Commodity Futures Trading Commission have launched parallel initiatives that could reshape how digital assets are traded and safeguarded in the United States.
## Derivative Definitions and Jurisdictional Boundaries Take Center Stage
The SEC and CFTC jointly opened a public comment period in June to examine how financial instruments like swaps, security-based swaps, and other emerging products should be classified, and where each agency’s regulatory authority begins and ends. The question carries enormous weight for the crypto industry, where hybrid instruments like perpetual futures have blurred traditional lines between commodity and securities markets.
A coalition of former regulators from both agencies has now entered the debate with a shared warning: poorly calibrated rules risk pushing trillions of dollars in trading activity offshore. The letter, authored by 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, argues that similar underlying risks should receive similar regulatory treatment. The group also cautions that overlapping requirements from multiple agencies could impose unnecessary compliance costs on market participants.
The bipartisan composition of the coalition drew particular attention given that neither the SEC nor the CFTC currently has bipartisan representation at the leadership level. The signatories emphasized that the questions at hand have historically united commissioners across party lines, particularly around the goals of investor protection and preserving U.S. market competitiveness.
## The $90 Trillion Offshore Challenge
The urgency behind the letter stems from a striking statistic: offshore perpetual futures trading is estimated to have exceeded $90 trillion in 2025, a dramatic increase from roughly $28 trillion just two years prior. Perpetual contracts—derivatives that never expire and are popular for crypto trading—have become the dominant product in offshore markets, with platforms like Hyperliquid drawing significant volume away from U.S.-regulated venues.
President Trump has publicly acknowledged the issue, stating that CFTC Chairman Michael Selig is actively working to bring Hyperliquid and similar platforms under the U.S. regulatory umbrella. Meanwhile, prediction market platform Kalshi, which launched crypto perpetual contracts earlier this year, estimates that the offshore market has grown roughly threefold in two years.
Kalshi sponsored the comment letter by retaining law firm Bellementis PLLC to assist with drafting. The former officials involved stated they were not compensated and had no editorial control over the letter’s contents.
Former CFTC Chairman Giancarlo put it succinctly: “The $90 trillion offshore perpetuals market isn’t a mystery to solve, it’s a market waiting for a sensible U.S. rulebook. 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.”
## SEC Custody Rules Undergo Comprehensive Rewrite
On a separate track, the SEC has forwarded a major revision of its custody rules to the White House Office of Information and Regulatory Affairs (OIRA) for interagency review. The proposed rewrite aims to address a long-standing question: how SEC-regulated investment advisers and investment companies can lawfully provide custodial services for digital assets while remaining compliant with federal securities law.
Under existing rules, investment advisers are required to use “qualified custodians”—entities that meet rigorous standards for the safeguarding, segregation, and accounting of customer assets. The crypto industry has sought clarity for years on how these standards apply to digital assets, given that they do not fit neatly into traditional categories of securities or funds.
The new approach represents a significant departure from a prior attempt under then-SEC Chairman Gary Gensler, who proposed a sweeping “safeguarding” rule that would have extended traditional custody requirements to virtually all client assets, including digital ones. That proposal was abandoned last year under the current administration’s SEC, led by Chairman Paul Atkins, who has sought to roll back what was perceived as overly broad regulatory overreach.
The text of the revised custody rules has not yet been made public, so specifics about which firms might qualify as qualified custodians for digital assets—and what standards they would need to satisfy—remain unclear. However, the SEC has indicated that the rewrite aims to clarify existing rules while removing provisions it considers outdated.
## Reg Crypto Proposal Advances Through Federal Register
In related news, the SEC’s broader “Reg Crypto” proposal—which would establish a new regulatory framework for certain crypto asset offerings—has officially been published in the Federal Register and is now open for public comment through October 20. This marks a key milestone in the agency’s effort to bring clarity to the token issuance and trading landscape.
Together, these developments signal that U.S. regulators are not waiting on Congress to act. Both the executive and independent agency branches appear determined to build the regulatory architecture for digital assets from the ground up, whether or not legislative breakthroughs come in the near term.
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## Frequently Asked Questions
**What are perpetual futures, and why do they matter for U.S. regulation?**
Perpetual futures are derivative contracts that allow traders to speculate on the price of an asset without an expiration date. They require frequent funding payments between long and short positions and are heavily used in crypto trading. Their cross-border nature and structural similarity to both securities and commodities have made jurisdictional classification a central challenge for U.S. regulators.
**Who signed the bipartisan comment letter, and why is their background significant?**
The letter was signed by 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. Their combined experience spans both agencies and both sides of the political aisle, lending the letter unusual credibility and signaling that the issues at hand are not partisan in nature.
**What does the SEC’s custody rule rewrite mean for investment advisers?**
The rewrite aims to provide clear guidance on how SEC-regulated investment advisers can hold and safeguard digital assets on behalf of clients. Currently, advisers must use qualified custodians that meet strict standards for asset segregation and accounting. The new rules could expand the pool of eligible custodians to include entities capable of handling digital assets, though specific requirements have not yet been finalized.
**What is the Reg Crypto proposal, and when will the comment period close?**
Reg Crypto is the SEC’s proposed framework for regulating certain crypto asset offerings. It has been published in the Federal Register and is open for public comment until October 20. The proposal would establish new rules governing how digital assets are offered and sold to investors.
**How much trading is happening offshore, and what does that mean for U.S. markets?**
Estimates place offshore perpetual futures trading at over $90 trillion in 2025, up from approximately $28 trillion two years earlier. This shift means that significant trading volume, liquidity, and user activity are occurring outside the reach of U.S. regulators—raising concerns about investor protections, market integrity, and the competitive position of American exchanges.
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## Conclusion
The United States stands at a pivotal moment in its approach to digital asset regulation. With Congress in recess and comprehensive legislation stalled, the SEC and CFTC are seizing the initiative to define the rules of the road for a $2.5 trillion industry. From clarifying derivative classifications to rethinking custody standards and overhauling how crypto offerings are regulated, these agencies are building the infrastructure that will determine whether the U.S. remains a magnet for crypto innovation or continues to cede ground to offshore competitors.
Former regulators from both sides of the aisle have made their case clear: regulation must be calibrated to actual risk, not designed to impose maximum burden. The coming months will test whether the agencies can strike that balance—and whether the U.S. can reclaim its place at the center of the global crypto ecosystem.
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