President Joe Biden's decision to nominate two Democratic Commodity Futures Trading Commission (CFTC) heads to new roles could significantly impact the agency's approach to cryptocurrency regulation, according to investment bank TD Cowen. Last week, Biden nominated CFTC Commissioner Christy Goldsmith Romero to lead the Federal Deposit Insurance Corporation and Kristin Johnson to become Assistant Secretary for Financial Institutions at the Treasury Department. Both commissioners have been strong advocates for the agency issuing rules and guidance to protect consumers and address conflicts of interest in the crypto space.

If Romero and Johnson are confirmed in their new roles, the CFTC would be left with Democratic Chair Rostin Behnam and Republican Commissioners Caroline Pham and Summer Mersinger, giving the Republicans a majority. TD Cowen notes that this shift could influence the CFTC's crypto policies in the short term, potentially in a positive direction. The Biden administration is expected to move quickly to fill the two vacant spots, although replacements likely wouldn't be confirmed until the fall.

"In the short term, this could end up being positive for crypto as CFTC Chair Rostin Behnam has been one of the stronger crypto advocates that President Biden has nominated," wrote the TD Cowen Washington Research Group, led by Jaret Seiberg. Behnam has been vocal in urging lawmakers to pass legislation regulating the crypto industry. The U.S. House of Representatives passed the Republican-led Financial Innovation and Technology for the 21st Century Act (FIT21) in May, though it is unlikely to become law this year due to the lack of a companion bill in the Senate and less interest from Senate members in crypto legislation.

The FIT21 bill proposes to give the CFTC new jurisdiction over "digital commodities" while the Securities and Exchange Commission (SEC) would oversee "digital assets offered as part of an investment contract." Behnam has stated that his agency could implement a regulatory framework within a year if FIT21 were to become law.

However, TD Cowen also highlights potential risks if Biden secures a second term. The administration's skeptical stance on crypto suggests that new nominees might be less supportive of the industry, potentially pressuring Behnam to reduce his support for crypto initiatives.

Conversely, if Republican presidential candidate Donald Trump wins the election, he would appoint a new CFTC chair. Trump has recently taken a more favorable stance towards crypto, accepting crypto donations and expressing support for Bitcoin miners. This could result in a more crypto-friendly regulatory environment, as TD Cowen believes Trump is likely to appoint a crypto advocate to the CFTC, which could facilitate the advancement of crypto market structure legislation.

Overall, Biden's nominations and the upcoming election could lead to significant shifts in the CFTC's approach to cryptocurrency regulation, with potential implications for the broader crypto market.