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NEWS Crypto Weekly
U.S. Senators Propose Comprehensive Oversight of Crypto Industry U
ncertainty on the regulatory front has hindered innovation in the blockchain or "Web3" space. The Securities and Exchange Commission (SEC) stands out as the biggest area of uncertainty in determining whether a cryptocurrency or other digital asset merits a Securities Act exemption. The SEC commissioners and members of the industry have repeatedly called for regulatory clarity, but little progress has been made until now. A bipartisan bill has been proposed to regulate cryptocurrencies and other digital assets. At a time when partisanship is high ahead of the midterm elections, it is unclear whether the Senate will support the bill proposed by Senators Kirsten Gillibrand and Cynthia Lummis. Leading industry players in Washington have for the most part come to the conclusion that a long-term solution must come from the legislative branch Besides the fact that Lummis and Gillibrand are from different political parties, they are both members of the Banking Committee, which oversees the Securities and Exchange Commission, as well as the Senate Agriculture Committee, which supervises the Commodity Futures Trading Commission. Lummis has long advocated cryptocurrency development and has invested heavily in the industry. According to the bill, called the Responsible Financial Innovation Act the (RFIA) there will be legal definitions of digital assets and virtual currencies; the IRS will produce guidance for merchants accepting digital assets and charities accepting contributions in digital assets; and there will be a distinction between digital assets that are commodities or securities, something that has yet to be achieved. Lummis explained in an emailed statement that the bill "clarifies the regulatory framework for digital asset markets, provides a strong, tailored regulation of stablecoins, and
June 2022 | Volume 31
integrates digital assets into existing tax and banking laws." Under the RFIA, "digital assets" will be classified as commodities under the Commodity Exchange Act (CEA), thereby granting the CFTC authority to regulate crypto asset spot markets. By defining “digital assets” as commodities under the Commodity Exchange Act (CEA), the RFIA would give the CFTC primary authority over the spot market for crypto assets as a primary regulator. It is important to note that the definition only covers fungible assets, which excludes "digital collectibles and other unique digital assets." Unless the funds are held by an entity registered with a federal or state regulator, digital asset merchants would be required to segregate customer funds under the CEA framework, and investments may be limited under CFTC rules. All of this will be applauded by the Web3 industry, which has generally viewed digital assets as more akin to commodities than securities. The legislation imposes disclosure requirements on digital asset firms to ensure that consumers can make informed
decisions, delineates agency responsibilities over various digital assets, such as Commodity Futures Trading Commission jurisdiction over Bitcoin, and requires a study on digital asset energy consumption, among many other proposals. This development has led lawmakers on both sides of the aisle to support legislation that more closely examines digital assets. Senator Gillibrand said the bill provides "a regulatory framework that spurs innovation, develops clear standards, defines appropriate jurisdictional boundaries, and protects consumers." CFTC chief Ross Behnam has long advocated for greater oversight of the crypto spot markets, citing the volume of transactions in Bitcoin and Ether, the two most valuable cryptocurrencies. Both of these cryptocurrencies are commonly accepted as commodities, rather than securities that the SEC would oversee. It seems unlikely that the bill will pass this year. However, Sen. Pat Toomey (R-Pa.) suggested at CoinDesk's Consensus 2022 that legislation addressing stablecoins specifically may become law before 2023.
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