Key Takeaways
- The new bill grants Commodity Futures Trading Commission(CFTC) watchdog status and authority over the spot markets in crypto commodities.
- Lummins-Gillibrand bill suggests an industry sandbox in which regulators can let crypto companies test new products on a limited scale and duration.
- The crypto bill suggests a 100% reserve, asset type, and detailed disclosure requirements for all payments with stable coin issuers.
- The bill addresses CFTC and SEC jurisdiction, banking, interagency coordination, stablecoin regulation, among others.
Today, US Senators Kirsten Gillibrand and Cynthia Lummis have released the long-awaited bipartisan crypto bill. The introduction of the crypto bill, formally called the “Responsible Financial Innovation Act,” is the first major bipartisan attempt to create a comprehensive regulatory framework for digital assets in the US. The Lummis-Gillibrand legislation contains provisions aimed at settling disputes between the Commodity Futures Trading Commission and the US Securities and Exchange Commission by assigning regulatory authority over digital asset spot markets not deemed securities to the CFTC.
By defining crypto securities and commodities, the new crypto legislation allows token issuers to know beforehand what they are launching based on the “purpose of the asset and the rights or powers it conveys to the consumer.” The 70-page document requires Decentralized Autonomous Organizations (DAOs) to be incorporated under the laws of a recognized jurisdiction. The legislation further seeks to exclude assets obtained by cryptocurrency mining from a taxpayer’s gross income until the mined crypto is actually sold.
The US senators behind the crypto bill are also proposing to create an advisory committee composed of crypto advocacy groups, federal and state regulators and industry leaders to develop guiding principles for US regulatory agencies and advise lawmakers on digital assets. In US Senator Lummin’s words, the Responsible Financial Innovation Act “creates regulatory clarity for agencies charged with supervising digital asset markets, provides a strong, tailored regulatory framework for stablecoins, and integrates digital assets into our existing tax and banking laws.”
The bill expected to redefine the US government’s relationship with cryptocurrencies formally introduces the term “digital assets” to the CFTC’s Commodities Exchange Act passed in 1936. The bill also would further delay until 2025 and amend the crypto broker tax reporting requirements passed in 2021 as part of the bipartisan infrastructure package.
Taking lessons from the unprecedented collapse of the $60 billion TerraUSD/Luna stablecoin, the new crypto bill suggests a 100% reserve, asset type, and detailed disclosure requirements for all payments with stablecoin issuers. The crypto legislation aims to establish core principles for banks and non-banks that issue stablecoins and digital tokens pegged to an external asset such as the US dollar or gold. The USD collapse, which triggered a weeks-long sell-off in the cryptocurrency market, has only increased the calls for crypto regulation, especially stable coins. The US Senators state that existing stablecoin issuers and new entrants into the market should have an adequate opportunity to compete with existing banks and credit unions
Under the legislation, Crypto operations watched by the CFTC will have to start paying fees to fund the agency. The Lummins-Gillibrand bill also suggests an industry sandbox in which regulators can let crypto firms test new products on a limited scale and duration. The legislation has been in the making ever since the Senators announced it in March 2022. Touted as a “landmark bill” by Gillibrand herself, the bill has a higher chance of becoming law since Lummins serves on the Senate Banking Committee that oversees the SEC, and Gillibrand works with the Agriculture Committee that supervises the CFTC.
The bill, if it becomes a law, would not only formally recognize digital assets as a part of the US financial system but would also require regulators to study and clarify their positions on various crypto issues to help embed cryptocurrency into the US economy. The crypto bill is expected to attract crypto investors from all over the world and help in turning the US into a welcoming hub for digital asset trading.
