It would be ideal for the industry if Congress weighed in on its fate rather than leaving it to the unelected regulators of the Securities and Exchange Commission (SEC). To that end, representatives from both sides of the aisle have introduced bills designed to provide “regulatory clarity.” The moderate stance appears to favor placing the crypto primarily under the jurisdiction of the Commodity Futures Trading Commission (CFTC).
To be sure, there are two Senate bills in particular that are less than ideal.
Boozman-Stabenow lacks clarity
Democratic Senate Agriculture Committee Chair Debbie Stabenow co-wrote a 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’s “definitely a priority” for the committee to take action 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 also signed the bill. If it passes, all crypto trading platforms (brokers, dealers, and custodians) would be required to register with the CFTC. The exchanges would fall under the CFTC and bankruptcy protections, as well as minimum capital requirements, would be implemented.
Voices of Cryptocurrency Insiders a particular recurring criticism: The bill should establish a clearer definition of securities and commodities. Will digital titles be assessed by the Howey test or some other way? The bill does not specify anything. The bill also risks being interpreted as a de facto ban on decentralized finance (DeFi).
It is not a good approach to let bureaucrats and unelected courts decide on a case-by-case basis whether or not digital assets are security. The United States should avoid rulemaking by application, allowing Congress to determine the difference between a digital security and a commodity.
While it does not define which cryptocurrencies constitute a security, the bill amends the definition of a commodity to include “digital commodity.”
The Lummis-Gillibrand Act on Responsible Financial Innovation
The Stabenow-Boozman bill isn’t the only Senate proposal on the docket for next year. Republican Senator Cynthia Lummis and Democratic Senator Kirsten Gillibrand also drafted a comprehensive bill that would set standards for consumer protections, investor protections and advertising.
Lummis had earned a reputation as a “pro-crypto” before putting his name on the Responsible Financial Innovation Act (RFIA) alongside New York Senator Kirsten Gillibrand. The bill introduces a new term, ancillary asset, which sounds similar to a utility token. To be designated as an ancillary asset, the token must be fungible. People generally seem to regard the bill as good for crypto.
Crypto supporters should become more vocal
The cryptocurrency industry is around 10 years old, and yet there are still demands for “regulatory clarity”. If the SEC knew which were securities, wouldn’t they have told the industry? Maybe even the SEC doesn’t know 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 likely all offer different opinions on what would be considered securities.
Although the focus is on the SEC, many organizations undermine the true ethos of crypto. These include the Office of Foreign Assets Control (OFAC), the Financial Crimes Enforcement Network (FinCen), the Treasury Department, and more. Even our own industry numbers undermine crypto. Sam Bankman-Fried, who was arrested in the Bahamas and is about to be extradited to the United States, argued that interfaces to protocols should be protected by licenses and know your customer’s laws.
This prevents anyone from participating in the industry who cannot find the $100,000 to get a preliminary legal review, stifling innovation and entrepreneurship. Only large companies would be able to offer financial services. The industry must push back against any legislation that violates the openness of crypto.
The United States House of Representatives will consider several crypto-related bills in 2023 in what could be a fateful year for crypto. The industry must now be diligent to ensure that events deep in the past crypto winter do not give way to draconian regulations.
Kadan Stadelmann is a blockchain developer and the Chief Technology Officer of the Komodo Platform. He graduated from the University of Vienna in 2011 with a degree in Information Technology before attending the Berlin Institute of Technology for Technical Computing and Scientific Computing. He joined the Komodo team in 2016.
This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.