As Congress considers handing the Commodity Futures Trading Commission a far broader role in policing crypto markets, a new watchdog report warns the agency may be ill-equipped for the job. In a Tuesday report, the CFTC’s Office of Inspector General named digital asset regulation a top management and performance risk for fiscal year 2026, flagging pending legislation that could sharply expand the agency’s responsibilities. That expansion, the report says, would require a major investment in people, technical expertise and new data systems as oversight shifts from traditional derivatives toward constant, decentralized spot markets. The timing is striking: the CFTC’s workforce has shrunk significantly just as its potential remit grows. Staffing fell from roughly 708 full‑time employees at the end of fiscal year 2024 to about 556 one year later — a decline of about 21.5%, the OIG noted. Industry voices say that gap matters. “The CFTC is the most institutionally aligned regulator for crypto derivatives and prediction markets, but its mandate and resourcing were not designed for always‑on, decentralized spot markets,” Vincent Liu, CIO of quantitative trading firm Kronos Research, told Decrypt. He added that effective oversight will demand “new approaches to market surveillance, enforcement, and data collection” and likely a “targeted statutory expansion and a hybrid framework” rather than a simple extension of existing commodities law. Legislative momentum is uncertain. The CLARITY Act — a bipartisan effort intended to draw clearer jurisdictional lines between the CFTC and the SEC and to assign the CFTC responsibility for crypto spot markets while clarifying classification and registration rules — has stalled. Negotiations broke down after last‑minute edits, pushback from Coinbase, and renewed Senate disagreements over jurisdiction and enforcement scope. Prediction markets add another layer of complexity. Because they can convert real‑world events into tradable contracts and often run on public blockchains, they strain traditional definitions of “commodity” and cross jurisdictional boundaries. “On‑chain prediction markets will likely survive through compliance‑aware architectures that allow selective transparency, enabling regulators to verify legality and market integrity without exposing all user activity,” Rob Viglione, CEO of Horizen Labs, told Decrypt. He argued the eventual regulatory model will need to “balance privacy with provable compliance, not blanket bans or full surveillance.” The OIG report underscores a core tension: lawmakers may be ready to reassign broad crypto oversight to an agency that would need to grow its workforce and technological capabilities dramatically to do the job. Decrypt has reached out to the CFTC for comment. Read more AI-generated news on: undefined/news

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