The Blue Wave Reshuffles Power: SEC Retakes the Pen, Courts Question the CFTC

Forty-eight hours after the midterm dust settled, Washington’s power structure over the crypto industry has shifted on multiple fronts at once. The CLARITY Act’s CFTC-led framework is on its last legs, a SEC-led replacement is taking shape, the administrative green light for single-stock perpetuals faces judicial doubt, and a parade of committees is training its sights on the White House’s crypto empire.

The Legislative Track: SEC Retakes the Drafting Pen, Waters’ Bill of Rights Gets a Second Life

On November 4, crypto journalist Eleanor Terrett reported, citing three industry sources who spoke with Democratic staffers, that House Democrats are discussing whether to expand Waters’ 2025 Crypto Investor and Consumer Bill of Rights (Amendment 31 to the CLARITY Act, killed by the Rules Committee on a 4-8 party-line vote) into a broader “market structure” bill in the next Congress. The draft would incorporate Waters’ previously-rejected Democratic CLARITY provisions as well as parts of the terms Senate Democrats had reached with Republicans before the September 15 cloture vote.

The weight of this item is not in the details but in the direction: the framework under discussion would give the SEC a larger role in overseeing crypto markets and shrink the CFTC’s role. That is the opposite of the CLARITY Act passed by the House 294-134 in July 2025, which handed spot digital-commodity markets and intermediaries to the CFTC while the SEC kept securities and primary issuance. A reversal of direction means that even if the new Congress reintroduces market structure legislation in 2027, the starting point will be a SEC-led version, not the CFTC-led framework the industry lobbied for years. Republicans have already dismissed the plan as a “messaging bill,” but the Democrats’ seat gains in the midterms put a question mark over that label.

The specific provisions of the Waters amendment sketch the protectionist tenor of the new bill: 24/7 customer service, SIPC-like investor protection coverage, fiduciary duty and best-execution rules, anti-front-running rules, bankruptcy-remote custody of customer assets, 24-hour withdrawal processing, monthly auditor-attested proof of reserves, and increased funding for the SEC and CFTC. Not one of these provisions appeared in the CLARITY Act as passed. Add the ethics provisions that surfaced in Senate talks, which would bar the president, vice president, members of Congress and their immediate families from issuing, sponsoring or promoting digital assets, and the new bill is effectively a crypto-industry Investor Protection Act plus an Official Ethics Act.

The timeline is equally unforgiving: if the CLARITY Act does not break through in the lame-duck session, it dies automatically on January 3, 2027 when the 119th Congress adjourns, and the new Congress starts from zero. Duke University scholar Lee Reiners put it bluntly: “CLARITY is done.” The more realistic script is that the legislative track stays frozen while agencies push rules forward under existing statutory authority. The SEC’s Regulation Crypto Assets, its October custody proposal, and the CFTC’s CTX/CAM advance notice with comments due December 14 all require no new congressional authorization. Administrative rules can be rewritten at any time by the next administration, which is the structural gap between the administrative path and enacted law that cannot be bridged.

The Judicial Track: Court Doubts CFTC Authority, the Classification of Single-Stock Perpetuals Hangs in the Balance

On November 3, U.S. District Judge Valerie Caproni in the Southern District of New York rejected the emergency request from the Capital Markets Alliance (whose members include Cboe Global Markets, Citadel Securities and the Healthy Markets Association) to suspend single-stock perpetuals, so trading continues on Kalshi, Coinbase Derivatives and Bitnomial. Kalshi listed its first four contracts the next day: Qualcomm, McDonald’s, Amgen and Costco, with maximum leverage of 4.9x.

The denial was procedural: the plaintiffs failed to show members would suffer imminent and irreparable harm. But Caproni’s wording tilted the merits in the plaintiffs’ favor. She held that the CMA’s claim that the CFTC exceeded its authority has a fair chance of succeeding on the merits, reasoning that perpetual contracts have no expiration date and no conventional delivery obligation, so they do not fit the definition of “security futures” and instead more closely resemble swaps under SEC jurisdiction. She also found the balance of equities and the public interest favor the plaintiffs, warning that the CFTC’s action could be a major disruption to the equities market. Judge Lorna G. Schofield will take over the case; the CFTC must respond to the preliminary injunction motion by November 6 and the plaintiffs reply by November 10.

The roots of this lawsuit go back to May. The CFTC approved Kalshi’s first U.S. bitcoin perpetual on May 29; CME sued the CFTC in a Washington D.C. federal court on June 18, arguing that a perpetual has no expiration date and is a swap rather than a future, and that case remains undecided. The November 3 statement is an extension of the same regulatory approach: CFTC Chairman Michael Selig, invoking the Commodity Futures Modernization Act of 2000 and Commission Regulation 40.3, classified single-stock perpetuals as security futures products, requiring venues to hold both DCM registration and SEC notice registration as a national securities exchange for security futures. Seven entities (Cboe, CME, Coinbase, Kalshi, Bitnomial, Nadex and ICE Futures U.S.) hold dual status today, and five of them filed within a single 30-day window in September. Selig described the arrangement as evidence of regulatory coordination after the two agencies signed a memorandum of understanding in March.

The industry reaction pushed the classification fight to a deeper level. SIFMA President Kenneth Bentsen wrote to the SEC and CFTC on November 2 asking that the impact on spot liquidity, price discovery and cross-market manipulation be assessed before launch. Warren issued a statement within minutes of the CFTC’s announcement, warning that U.S. equity perpetuals “could inject significant volatility into the market.” Kalshi’s head of institutional business Andy Ross fired back at the FIA annual meeting with an unmistakable jab: “Monopolists always sue when they face competition.” Whichever way this litigation lands, it will rewrite the regulatory boundary between security futures and swaps. If the court ultimately holds that single-stock perpetuals are security-based swaps under exclusive SEC jurisdiction, the CFTC’s entire year-long open-door policy on crypto derivatives will face a re-examination.

The Oversight Track: Three Committees Line Up, a $2.3 Billion Crypto Haul Becomes the Hearing Target

Oversight is the track that moves fastest and hits market sentiment most directly. Within hours of election night, Democrats put their committee leadership and investigation roadmap on the table: Jamie Raskin is expected to chair the House Judiciary Committee, Robert Garcia is set to lead House oversight, and Elizabeth Warren is the frontrunner to chair the Senate Banking Committee. Garcia’s election-night post ran to two words: “Lawyer up.”

The core target is the Trump family’s crypto empire. Reuters estimates the family has earned roughly $2.3 billion since inauguration across four crypto ventures: World Liberty Financial contributed over $1.4 billion, the TRUMP memecoin about $616 million, and investor losses are roughly the same size. Raskin plans to examine alleged self-dealing in Trump’s crypto ventures and the presidential pardons granted to specific donors and law firms; Garcia will investigate Trump’s crypto businesses and their associates; Warren says she will pursue family businesses tied to crypto. Senator Richard Blumenthal, the top Democrat on the Senate Permanent Subcommittee on Investigations, had already demanded records from Tether in October; the subcommittee previously wrote to TRUMP memecoin and World Liberty Financial executives about ownership and investment structure.

World Liberty Financial sits at the center of the storm. In January 2025, Aryam Investment 1, an Abu Dhabi entity backed by Sheikh Tahnoon bin Zayed Al Nahyan, agreed to buy an undisclosed 49% stake for $500 million, and G42 executives took board seats. Weeks before the U.S. and the UAE announced their AI chip framework, MGX, another Tahnoon-led firm, used World Liberty’s USD1 stablecoin to complete a $2 billion investment in Binance. Democrats view this sequence as a national security issue. The pardon of Binance founder Changpeng Zhao is also on the list: Binance helped the Trump family issue a stablecoin, giving the Judiciary Committee a crypto hook directly tied to a review of presidential power.

Subpoena power arrives when the 120th Congress convenes on January 3, 2027. For two years, Democratic letters carried no legal force; committee chairs will then be able to compel testimony and documents. Strategically, Democrats expect the administration to lean on executive privilege as it did in Trump’s first term, so they plan to bypass the White House and subpoena private entities directly. World Liberty, Fight Fight Fight and other family-linked companies would be the first to hand over records. The market is already pricing this in: the TRUMP token fell more than 17% in 24 hours to an all-time low, WLFI dropped over 8%, Trump Media & Technology Group hit an all-time low of $5.03, and the leveraged ETF DJTU fell 32%. Bitcoin, meanwhile, climbed back above $80,000 and total market cap rose over 3%. Political risk is being stripped out of the crypto narrative as a whole and converted into idiosyncratic risk for Trump-linked assets.

The boundaries should be kept in view: Hakeem Jeffries, the frontrunner for House Speaker, has publicly committed to a 100-day agenda centered on lowering living costs, reversing Medicaid cuts, adjusting tariffs and ending the Iran war, with crypto oversight trailing the kitchen-table issues, and Democrats are divided on whether to pursue impeachment. Hearings make headlines but do not necessarily produce legislation. What practitioners should actually track is how deeply the three committees penetrate the WLFI, TRUMP token issuance structure and the CZ pardon, because those lines decide who owns the crypto agenda in Washington.

Takeaways for Practitioners