Congress is set to take up a slew of legislative proposals in 2023 that will determine which regulators have chief domain over cryptocurrency.
It would be ideal for the industry for Congress to weigh in on its fate rather than leaving it to unelected regulators at the Securities and Exchange Commission (SEC). To that end, representatives from both sides of the aisle have introduced bills designed to offer “regulatory clarity.” The moderate position seems to favor placing crypto mostly under the jurisdiction of the Commodity Futures Trading Commission (CFTC).
To be sure, there are two Senate bills in particular that are not ideal.
Boozman-Stabenow lacks clarity
Democratic Senate Agriculture Committee Chairwoman Debbie Stabenow has coauthored one proposal with Republican Sen. John Boozman. With an increasing number of eyes on the bill in the wake of FTX’s collapse, Stabenow says it is “definitely a priority” that the committee will take action on next year.
The Stabenow-Boozman bill, which has broad bipartisan support, would give the CFTC jurisdiction over cryptocurrencies. Democratic Senator Cory Booker and Republican Senator John Thune have also signed on to the bill. If it passes, all crypto trading platforms (brokers, dealers and custodians) would be required to register with the CFTC. Exchanges would report to the CFTC, and bankruptcy protections, as well as minimum capital requirements, would be implemented.
Cryptocurrency insiders voice one particular recurring critique: The bill needs to lay out a clearer definition of securities and commodities. Will digital securities be evaluated by the Howey test or some other way? The bill doesn’t clarify. The bill also risks being interpreted as a de facto ban on decentralized finance (DeFi).
It is not a good approach to leave non-elected bureaucrats and courts to determine case-by-case whether or not digital assets are a security. The United States should avoid rulemaking by enforcement, allowing Congress to determine the difference between a digital security and a commodity.
Despite failing to define which cryptocurrencies constitute a security, the bill does change the definition of a commodity to include “digital commodity.”
The Lummis-Gillibrand Responsible Financial Innovation Act
The Stabenow-Boozman bill is not the only Senate proposal sitting on the docket for next year. Republican Senator Cynthia Lummis and Democratic Senator Kirsten Gillibrand have also drafted a comprehensive bill that would set standards for consumer protection, investor protection, and advertising.
Lummis had gained a “pro-crypto” reputation before putting her name on the Responsible Financial Innovation Act (RFIA) alongside New York Senator Kirsten Gillibrand. The bill introduces a new term, ancillary asset, which seems similar to a utility token. To be designated an ancillary asset, the token must be fungible. People generally seem to view the bill as good for crypto.
Crypto proponents should become more vocal
The cryptocurrency industry is roughly 10 years old, and yet there are still clamors for “regulatory clarity.” If the SEC knew which ones were securities, however, wouldn’t they have informed the industry? Maybe not even the SEC knows where to draw the line. If you took a list of the top 20 cryptocurrencies to five different major law firms with experience in crypto, they would all likely offer different opinions about which would be deemed securities.
While there’s a lot of focus on the SEC, there are many organizations undermining the true ethos of crypto. Those include the Office of Foreign Assets Control (OFAC), the Financial Crimes Enforcement Network (FinCen), the Department of the Treasury, and more. Even figures from our own industry undermine crypto. Sam Bankman-Fried, who was arrested in the Bahamas and is set to be extradited to the United States, argued that interfaces to protocols should be gated by licenses and know your customer laws.
That eliminates everyone from partaking in the industry who can’t come up with the $100,000 to get a preliminary legal review, stifling innovation and entrepreneurial spirit. Only large companies would be able to offer financial services. The industry must push back against any legislation that infringes on the openness of crypto.
The United States House of Representatives will consider multiple crypto-related bills in 2023 in what could be a fateful year for crypto. The industry must become diligent now in ensuring events deep into this past crypto winter don’t give way to draconian regulations.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.