Ambitious New Crypto Bill Proposed

Neither this post nor any other on cryptofal.com should be taken as financial advice. It is not.

The long awaited crypto bill from Senators Cynthia Lummis and Kristen Gillibrand, named The Responsible Financial Innovation Act, was introduced on Tuesday and outlines a long overdue regulatory framework for the crypto ecosystem. 

The primary objective of this bill was to offer greater legal clarity by defining cryptocurrencies and establishing government agency jurisdiction. While only in the beginning stages of the political process, the proposed bill classifies most digital assets, like BTC and ETH, as commodities, placing them under the jurisdiction of the Commodities Futures Trading Commission (CFTC).  Potentially, the CFTC will have increased oversight in the space but that won’t stamp out the role of the Securities Exchange Commission (SEC), who will maintain an active, albeit less prominent, presence in the crypto ecosystem.

Previously, the primary reference for determining an assets categorization was the Howey Test, but this strategy has long plagued the space with confusion, even as the SEC pursues a lawsuit against Ripple Labs for selling tokens as unregistered securities. 

As a way to provide clarity, the bill seeks to amend current law to include a definition of ‘digital assets’ in the form of: virtual currency and ancillary assets, (“consistent with section 2(c)(2)(F) of the Commodity Exchange Act”), payment stablecoins (“consistent with section 403 of the Legal Certainty for Bank Products Act of 2000 7 U.S.C. 27a”), and other securities and commodities that “confers economic, proprietary, or access rights or powers and is recorded using cryptographically secured distributed ledger technology, or any similar analogue.” 

As such, determining which coins and tokens will fall under each category will depend on each respective company, the use case of the coins, degree of decentralization, and expectation of the asset performance.  In the end, it’s possible crypto companies could report to either the CFTC, SEC, or both.  

So far, we have only skimmed the surface of the bill by analyzing definitions and agency jurisdiction.  Further sections tackle taxation on transactions and mining, retirement investments with digital assets, environmental and energy impact of mining, stablecoins, DAOs, cybersecurity, bankruptcy, and consumer protection to name a few. 

The mountain of overview this bill attempts to scale is, in a word, ambitious.  As such, this is best seen as an introduction to what legislative measures for the crypto space will look like.  Even if the bill isn't segmented in order to tackle all the areas it attempts to address, it will undoubtedly change drastically before submission for a congressional vote.  

Currently, Gillibrand and Lummis’ bill is under review by the Senate Committee on Finance and, before long, will likely make its way through a number of committees and subcommittees. Most political pundits have expressed low confidence in seeing the legislation pass before the year is out, but it’s possible that a less ambitious bill could be pushed through expeditiously. 

Many congress members, on both sides of the aisle, have expressed the desire to not only define the space better but also reign in stablecoins. If there is to be any smaller bills in the periphery, they will most likely start there.