US Capitol Building in Washington, DC
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As exciting as Wall Street and Maine Street may be as a new investment idea and store of value, the speed with which cryptocurrencies have entered US mass markets has raised proportional concerns for U.S. regulators, who have only been endowed with decades of police securities laws. an industry that many still call the financial “Wild West.”
But after months of research, industry consulting and bipartisan teamwork, Senators Kirsten Gillibrand and Cynthia Loomis said Tuesday they were ready to make the first major attempt to put up railings around the nascent industry.
Their bill, entitled The Responsible Financial Innovation Act, is a regulatory change that will classify most digital assets as commodities such as wheat, oil or steel. As such, bipartisan legislation will also leave most of the responsibility for overseeing the Commodity Futures Trading Commission rather than the Securities and Exchange Commission, as some expected.
Gilibrand, a New York Democrat on the Senate Committee on Agriculture, and Loomis, a Wyoming Republican in his first term on the banking committee, said the bill was the culmination of months of cooperation in the House and Senate and was a critical first try. to structure digital asset markets with long-awaited legal definitions.
Their offices advertise the bill as “a remarkable bipartisan legislation that will create a complete regulatory framework for digital assets that promotes responsible financial innovation, flexibility, transparency and sound consumer protection, while integrating digital assets into existing legislation.”
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The cornerstone of the legislation is how it defines the vast number of digital assets available to American investors and consumers.
With few exceptions, the bill defines digital currencies as “ancillary assets” or intangible, substitutable assets that are offered or sold in tandem with the purchase and sale of a security.
Gillibrand and Lummis officials explained that their law treats all digital assets as “ancillary” unless they are treated as a security that a corporation would issue to attract investors to build a capital pool.
Cryptocurrencies and other digital coins will not be treated as traditional securities under the control of the SEC unless they give the holder the privileges enjoyed by corporate investors, such as dividends, liquidation rights or financial interest in the issuer, the offices told reporters.
They added that the bill was the product of months of discussion with fellow senators, including Republican minority leader Mitch McConnell and Pat Toomey, as well as Democrats such as Ron Wyden.
Representative Ro Han, a Democrat who represents Silicon Valley, also joined.
“My hometown of Wyoming has worked hard to lead the nation in digital asset regulation, and I want to bring that success to the federal level,” Loomis said in a statement. “As this industry continues to grow, it is crucial that Congress carefully draft legislation that encourages innovation while protecting consumers from bad participants.
“The Lummis-Gillibrand framework will provide clarity to both industry and regulators, while maintaining the flexibility to take into account current developments in the digital asset market,” Gillibrand added in the same issue.
The CFTC and the SEC together regulate large sections of the US market and act as two powerful observers on Wall Street. The former oversees the purchase and sale of raw materials such as corn, coffee, gold and oil, while the latter controls companies, executives and securities that seek to raise capital from society.
Although Congress must decide how government agencies control U.S. markets, the SEC and its chairman, Gary Gensler, have led a public crusade for more than a year in support of stricter cryptocurrency rules.
“At the moment, we simply do not have enough protection for investors in crypto finance, issuance, trade or lending,” Gensler told lawmakers in September. “Honestly, at the moment, it’s more like the Wild West or the old world of ‘buyer protection,’ which existed before the securities laws were passed.”
Lummis and Gillibrand said they had worked with the SEC on their plan and spent weeks trying to allay fears expressed by the regulator’s lawyers that the legislation would cede too much power.
They also said fees collected from digital asset issuers will play an important role in increasing the CFTC’s budget to absorb what is expected to be a flood of regulatory oversight.
Although Gillibrand and Lummis have experience working with the CFTC and SEC, respectively, it was unclear on Tuesday morning what each institution thought of the new legislation. Neither the CFTC nor the SEC responded immediately to CNBC’s requests for comment.
The contributions of both agencies are crucial to the US legal debate on how to define cryptocurrencies and other digital assets.
The Gillibrand and Lummis bill, for example, defines a “digital asset” as a natural electronic asset that provides economic or proprietary rights or access rights and includes virtual currency and stable payment coins.
He later defined the virtual currency as a digital asset that is used “primarily” as a medium of exchange, unit of account or storage of value and is not backed by a major financial asset.
These definitions, while often burdened with legal jargon, have a profound effect on the way digital currencies are controlled, and are of particular interest to the most powerful players in the growing world of crypto lobbying.
The industry has hired more than 200 employees from the White House, Congress, the Federal Reserve and political campaigns, according to the Technology Transparency Project. Meanwhile, cryptocurrencies have contributed more than $ 30 million to federal candidates and campaigns since the start of the 2020 election cycle, according to documents held by the Federal Election Commission.
Both Lummis and Gillibrand want to work with their counterparts to develop their respective countries into blockchain and crypto shelters.
In the Empire State, New York City Mayor Eric Adams invested his early salaries in bitcoins and ether, while Richie Torres, a Democrat representing the Bronx, said in March that his city “must and must embrace crypto if it wants to remain the financial capital of the United States.” the world. ”
Wyoming, meanwhile, is revising its 2019 laws to create a new type of banking charter called a special-purpose depository to accommodate start-up cryptocurrencies and trading platforms, and remains on an aggressive path to diversify into finance and away from old-school industries. such as coal and gas.
Employees of both senators highlighted key features of the bill in an interview with reporters, including certain tax breaks that would protect stablecoin holders from having to account for changes in income every time they make a purchase in digital currency.
These disclosures will inform investors about the issuers ‘experience in developing digital assets, the history of the issuers’ previous asset prices, the expected costs and descriptions of the management teams and the obligations of each issuer.
Although officials described the bill as a mixture of contributions from politicians on both sides of the political path, they acknowledged that its size and complexity could force lawmakers to split it and try to pass on its components piece by piece.
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