June 15, 2022 | Jennifer Clarke
Estimated reading time: 4 minutes
Bipartisan Bill for crypto: will it clarify or complicate?
Following on from events in early March, many individuals would have been hoping for a quiet month for cryptocurrency. Those looking for calm in the markets will be disappointed, however, with Coinbase announcing that it’ll be cutting one fifth of staff and Binance halting bitcoin withdrawals – in ongoing market events dubbed ‘the crypto crunch’.
It will likely offer some solace to know that regulations are on the horizon, with yet another legislative measure announced this week.
On 7 June, US Senators Kirsten Gillibrand and Cynthia Lummis, introduced proposed legislation in the form of the Responsible Financial Innovation Act. The legislation, if passed, will shift a proportion of regulatory oversight of cryptocurrency from the Securities and Exchange Commission (SEC) to the Commodities Futures Trading Commission (CFTC) by classifying cryptocurrency as commodities rather than securities.
Under the proposed legislation, the CFTC would be responsible for all fungible assets that are not securities, while any asset that affords investors with privileges like interest or dividends will remain under the remit of the SEC. It also proposes measures that would implement taxation on certain elements of cryptocurrency, and would give the CFTC power to implement a fee on any crypto company that it oversees.
As well as marking a significant shift in the regulatory oversight of cryptoassets, the proposed legislation lays out plans for standard definitions for common phrases and terms used within the industry. It also sets out plans for the SEC and CFTC to work together with industry to create a self-regulatory organisation for crypto, much like the Financial Industry Regulatory Authority (FINRA).
Commenting on the proposals in a tweet, Senator Lummis said “we cannot rely on 20th century laws to dictate 21st century technology”, while Senator Gillibrand said the Bill “would establish a clear regulatory framework for federal oversight of digital assets and cryptocurrency, protecting consumers and the industry”.
This Bipartisan Bill will likely set the cat among the pigeons for the crypto industry and financial regulators alike. The proposal comes just weeks after the SEC announced it would be pumping significant resource into its regulatory efforts for crypto, with plans to almost double it’s current crypto unit. Under these new proposals, the SEC would have a much less significant role to play in future crypto regulation.
Interestingly, these proposals strive for clarity but currently only add complexity and confusion to the ongoing cryptocurrency debate. Whether crypto is a security or a commodity has been disputed for some time, with SEC Chair Gary Gensler advocating for it as a security. It had generally been agreed to consider crypto as a security – but under this proposal that could all change.
At first glance, it is encouraging to see that a regulator is striving to clarify the crypto market with a set of, what would be, commonly agreed definitions and terms. However, given further consideration, one could be critical of the extent to which common definitions will be ‘common’ if they are only created and used by these two Senators or one regulatory body.
Once again, we find ourselves seeking clarity and cooperation. Common definitions will need to be agreed by the majority and by consensus with regulators and governments working together to create a joint set of definitions and principles. Otherwise, a situation may arise where the CFTC is using one set of ‘common’ definitions, while the SEC uses another. The same is true for crypto regulation more broadly – if regulators do not work in cohesion with one another we will fast see a vast patchwork of regulation with little commonality. Crypto firms and investors will then be in a position whereby they can cherry pick their operations dependent on regulatory leniency or severity.
While regulation is needed – and it is encouraging to see Senators taking action to aid this – the applicability and enforceability of a regulatory framework for cryptocurrency can only succeed if there is unity of thought across regulators at both a State and country level. Otherwise clarity will soon turn to confusion.
The regulatory landscape for crypto is moving fast, with new legislation published every week. Keep ahead of regulatory change with CUBE.