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.
Related: Disaster looms for Digital Currency Group thanks to regulators and whales
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…
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