Sweeping Bipartisan Bill Aims For Across-the-Board Regulation of Crypto
Legislation Would Define Key Role for CFTC in Crypto Oversight
By: Aleksandar Gilbert •Dive
U.S. lawmakers unveiled bipartisan legislation on Tuesday that could dramatically alter the regulatory landscape for crypto – or in the words of its primary author, Sen. Cynthia Lummis (R-Wy.), “fully integrate digital assets into our financial system.”
The 67-page-bill is a beast that covers everything from regulatory oversight of crypto to defining what digital assets are, once and for all, to fixing the tax snafu passed last year that created major headaches for various DeFi players.
Most significantly, the bill would make the U.S. Commodity Futures Trading Commission the sole regulator of the crypto spot market, according to a summary of the bill released this morning. That’s important because for the last year the U.S. Securities and Exchange Commission and its outspoken chair, Gary Gensler, have been rattling the crypto markets with tough talk about a crackdown.
The bill concludes months of effort from Lummis and Sen. Kirsten Gillibrand (D-NY).
“[The bill] includes coins that are commodities, coins that are securities, it includes stablecoins, it includes a discussion about (central bank digital currencies),” Lummis said at a recent Bitcoin-themed forum hosted by the Heritage Foundation, a conservative think tank. “It includes definitions, consumer protection, privacy, taxation, and several other components of the discussion as it relates to all of this, using the existing regulatory framework.”
Some experts who had seen the draft applauded the Senators’ effort in crafting a comprehensive bill. But they said more work was needed to ensure it did not strangle certain initiatives within the industry.
‘The bill includes coins that are commodities, coins that are securities, it includes stablecoins, it includes a discussion about CBDCs.’
Sen. Cynthia Lummis
“I’m glad that Senators Lummis and Gillibrand have made an earnest effort at a mega crypto bill. Lots to like in there,” J.W. Verret, a professor at George Mason University Law School, wrote on Twitter. But “consumer protection provisions in the bill are a non starter,” he added. “The disclosure and delivery requirements are all focused on what large central exchanges can do, but has requirements that DeFi could never comply with.”
Adam Cochran, the founder of venture capital firm Cinneamhain Ventures, agreed there was plenty to like in the bill. . “But it aims to regulate it as strictly (or even more strictly) than banks and current financial services providers,” he said.
Bitcoin As a Commodity
He said the bill would designate a lot of assets as commodities under the CFTC and deploy new disclosure requirements that would make anonymously run projects almost impossible. The bill would also install bankruptcy changes and make it clear deposited assets would get returned to users and not liquidated, something he called “a win for users.”
Some crypto users had taken to Twitter over the weekend to sound the alarm, concerned that Lummis is a Bitcoin maxi, and that her bill would classify Bitcoin as a commodity and other Layer 1 cryptocurrencies as securities.
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It’s an important distinction – commodities markets are regulated less stringently than markets for securities, compliance for which is onerous and expensive. Commodities tend to be traded by professional investors more than retail players, who flock to stocks and crypto.
“The moral of the story here is anyone outside of $BTC holders is in big trouble in the coming weeks,” SmallCapScience wrote in a thread that has received thousands of likes and retweets. “Charts seem to agree with the thesis that $ETH and other L1’s will be classified as securities. Buckle up if you hold anything but $BTC or stables.”
But Kristin Smith, executive director at the Blockchain Association, said the fear was unfounded. The Blockchain Association was among several industry groups to influence the bill.
Kristin Smith: ‘No bill is going to move that only favors Bitcoin.’
“That is not my understanding of what the bill does,” Smith told The Defiant. “No bill is going to move that only favors Bitcoin. There are too many other crypto assets in this space that are incredibly valuable, that have functionality that is different from Bitcoin.”
A draft version of the bill from March was acquired and published by The Block last month. Smith said the bill has since been updated, with a pair of changes that “quite frankly got us from being less enthusiastic about it to fairly enthusiastic about it.”
One change was to make the CFTC the sole regulator of the crypto spot market. The earlier version had split that regulatory authority between the CFTC, the SEC and self-regulatory organizations.
“The SEC has been just sort of historically a lot less open to innovation around these markets,” Smith explained, whereas “the CFTC has been much more forward-looking.” The latter organization is also better-equipped to regulate crypto markets, which resemble the futures and derivatives markets that have traditionally fallen under its purview, she added.
Another change was to strengthen provisions relating to an “infrastructure bill tax fix,” Smith said. Among other things, last year’s trillion-dollar infrastructure bill expanded the definition of who is considered a broker. That could, in theory, force software developers, miners and stakers to gather and report know-your-customer (KYC) data to the IRS.
“The good news is I don’t think that’s what the [Internal Revenue Service] is going to do,” she said. “They’ve sort of hinted that that’s not their intention, but it is something that we still think should have a legislative fix, because we don’t want that ambiguity hanging out there for future IRS commissioners to to act upon.”
The bill, Smith stressed, is just the beginning of a larger conversation about how and whether to regulate the crypto market, “something out there that people can react to and suggest ideas off of.”
“This is something that potentially could move next year,” she said. “Right now, we’re still in the education phase and the debate and discussion phase.”