Law and Ledger is a premier news segment focusing on crucial crypto legal developments, brought to you by Kelman Law, a boutique law firm dedicated to digital asset commerce. The legal landscape surrounding cryptocurrencies and digital assets experienced a week of significant, fast-moving updates on both sides of the Atlantic. From the United States to Europe and down to the state level in New York, regulatory bodies and enforcement agencies have taken aggressive steps to clarify boundaries, establish supervision frameworks, and penalize misconduct.
The Commodity Futures Trading Commission (CFTC) initiated steps to develop a comprehensive federal framework for specific leveraged retail crypto transactions while simultaneously drawing clearer lines between regulated event contracts and traditional gambling products. Meanwhile, across the Atlantic, European regulators targeted noncompliant stablecoins and advanced legislative pathways for the direct oversight of major crypto-asset service providers. In the United States, state-level enforcement also proved its enduring potency through a definitive settlement between New York authorities and the co-founder of bankrupt lender Celsius.
CFTC Begins Developing a Federal Framework for Leveraged Crypto Trading
On October 5, the CFTC issued an advance notice of proposed rulemaking concerning retail crypto-asset transactions. This official notice formally initiates—though it does not yet complete—a complex rulemaking process operating under Section 2(c)(2)(D) of the Commodity Exchange Act.
That specific statutory provision governs certain commodity transactions offered to retail customers on a leveraged, margined, or financed basis. The federal agency is currently examining how it should properly apply its existing statutory authority to these specialized crypto transactions, which the regulatory notice refers to as "CTXs." Among a wide variety of operational and legal matters, the CFTC is actively requesting public feedback regarding robust safeguards against abusive market practices, reporting and structural requirements specifically tailored to modern crypto markets, and the potential creation of a dedicated "crypto asset market" subcategory within the standard designated contract market registration regime.
While this notice marks a significant milestone for federal oversight, it is important to note that it is not yet a proposed or final rule. Public comments will officially be due 60 days following its publication in the Federal Register. Only after reviewing this stakeholder feedback will the CFTC decide whether and how to formulate a formal regulatory proposal.
For cryptocurrency exchanges and other digital asset trading platforms, the introduction of such rules could eventually offer a more clearly defined federal pathway for certain retail leveraged products. However, industry participants should not misinterpret this move as a comprehensive federal licensing regime for the broader spot crypto market. The agency is operating strictly within the confines of its existing statutory authority. Consequently, digital asset businesses will likely continue to face a complex web of state-level money-transmission, virtual-currency licensing, and consumer-protection requirements alongside federal commodities regulation.
Companies that could potentially be affected by these developments are strongly advised to thoroughly review their internal treatment of leverage, financing arrangements, actual physical or digital delivery terms, and customer asset handling. Those critical operational details will ultimately determine whether a specific transaction falls squarely within the CFTC provision currently under consideration.
CFTC Draws New Lines for Prediction Markets and Gambling Products
Just days after its leveraged trading announcement, the CFTC proposed a separate action on October 9 to formally define qualifying event contracts as swaps. This new proposal is designed to cover prediction-market event contracts based on a wide array of subjects, including politics, sports, cultural events, and weather patterns. According to the agency, any contracts that successfully satisfy the proposed definition will be classified as commodity derivatives falling under the CFTC’s exclusive regulatory jurisdiction. Public comments for this specific proposal are due 30 days after its official publication in the Federal Register.
In tandem with this proposal, the agency adopted an interim final rule designed to exclude specified casino and sportsbook products from the legal definition of a "swap." This targeted exclusion covers traditional entertainment products, such as conventional sportsbook wagers and standard casino games, with the explicit intent of separating those traditional gambling activities from federally regulated event-contract markets. The interim rule takes effect immediately upon its publication in the Federal Register, though the agency is concurrently accepting public commentary on its terms.
Together, these complementary regulatory actions represent a material new phase in the ongoing national debate over prediction markets. Rather than merely addressing whether particular contracts may be legally listed on exchanges, the CFTC is proposing a much broader jurisdictional definition while carving out a separate, explicit exclusion for products it views as traditional casino-style gambling.
Prediction-market operators, digital trading venues, and prospective market entrants must carefully examine the true economic substance of their contracts rather than relying casually on product labels or marketing terms. Contract structures, settlement mechanisms, and the nature of the underlying event will heavily influence whether a specific product is treated as a federally regulated derivative or an activity subject to state-level gambling laws. Because key components of these regulatory initiatives remain proposals, the ultimate legal boundary has not yet been definitively settled.
ESMA Sets Expectations for Noncompliant Stablecoins
Shifting focus to Europe, the European Securities and Markets Authority (ESMA) published a formal supervisory opinion on October 8 addressing financial services involving stablecoins that fail to comply with the European Union’s landmark Markets in Crypto-Assets (MiCA) regulation.
ESMA’s clear legal position is that crypto-asset service providers authorized under MiCA should immediately cease providing European Union clients with any services involving noncompliant asset-referenced tokens and e-money tokens. The scope of this opinion encompasses a remarkably broad range of commercial activities, including trading-platform operations, direct asset exchange, order execution, financial advice, customer transfers, custody solutions, and portfolio management.
National financial regulators across EU member states are expected to actively ensure that authorized providers do not maintain or facilitate new retail access to affected stablecoins. ESMA has emphasized that firms should implement stringent technical, contractual, and organizational controls to prevent customers from acquiring or increasing their financial exposure to these tokens. Furthermore, any pre-existing exposure must be systematically remediated as rapidly as possible, and no later than three months following the publication of the opinion. Limited services may only continue temporarily when strictly necessary for orderly liquidation, conversion, customer withdrawal, transfer, or safe safekeeping.
This directive represents a distinct approach from prior broad policy proposals, providing an immediate, actionable supervisory position on how national regulatory authorities must handle services involving currently noncompliant stablecoin assets.
MiCA-authorized providers must now comprehensively identify every individual stablecoin accessible through their user interfaces—including those integrated via custody, routing, or portfolio management functions—and carefully document the controls utilized to restrict additional exposure. Crucially, the mere fact that a token remains readily available outside the European Union does not imply that an EU-authorized provider can continue making it accessible to EU-based clients.
EU Council Advances Direct ESMA Supervision of Major Crypto Firms
In another major European development on October 9, the Council of the European Union successfully agreed upon key elements of its negotiating position for the broader Market Integration and Supervision Package.
Under the Council’s proposed framework, ESMA would assume direct supervisory authority over the most significant cross-border crypto-asset service providers operating within the bloc. This scope is notably narrower than the initial approach put forward by the European Commission, which would have transferred direct supervision over all qualifying providers to ESMA regardless of size. Additionally, the Council signaled its support for establishing a new full-time ESMA executive board alongside a structured two-year transition period utilizing both ESMA and national regulatory personnel.
While this legislative measure does not yet constitute final law, the Council must now formalize its position before official negotiations with the European Parliament can begin, which can only happen after Parliament adopts its own internal stance.
Nevertheless, this strategic direction carries profound implications for crypto-asset service providers planning or expanding their European operations. Larger, deeply cross-border providers could eventually find themselves answering directly to a centralized EU regulator, while smaller firms will likely remain principally supervised by their respective national authorities. Consequently, a company’s corporate structure, operational scale, and cross-border footprint will directly impact not only its licensing obligations but also the identity and intensity of its primary regulatory overseer.
New York Reaches Settlement With Celsius Co-Founder
Domestically, state-level enforcement proved that it remains a formidable force in the digital asset sector. On October 9, New York Attorney General Letitia James announced a landmark legal settlement with Alex Mashinsky, the co-founder and former chief executive officer of the now-bankrupt cryptocurrency lender Celsius.
The comprehensive settlement permanently bars Mashinsky from participating in the securities, commodities, and cryptocurrency industries within the state and establishes conditional financial payment obligations of up to $35 million. The Attorney General’s initial 2023 lawsuit alleged that Mashinsky repeatedly made false and misleading public statements regarding the safety of Celsius’s platform, its underlying investment practices, and its overall financial condition, all while engaging in unregistered commercial activity. Notably, Mashinsky is separately serving a federal criminal sentence.
This high-profile resolution vividly illustrates how state-level securities, commodities, and registration laws remain highly consequential, even when federal criminal proceedings and bankruptcy liquidation distributions are already well underway. For industry founders and corporate executives, public descriptions of platform safety, yield-generation sustainability, customer asset security, and risk-management controls can create severe personal legal exposure alongside corporate liability.
Businesses evaluating these rapid regulatory developments and their practical implications for product design, licensing obligations, litigation risk, or compliance programs can contact Kelman PLLC to discuss their specific circumstances.
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Bitcoin & Major Altcoins
Bitcoin & Major Altcoins
Bitcoin & Major Altcoins
