The 69-page bipartisan “Responsible Financial Innovation Act” has been drafted by the Bitcoin-investing Republican senator Cynthia Lummis (Wyoming) and Democratic senator Kirsten Gillibrand (New York).
The initial perception of the bill’s contents seems to be that it’s generally outlined a pretty positive road for Bitcoin, but still has some potential speedhumps for a fair chunk of the altcoin sector.
One thing, though, taking the good with the bad (and it actually doesn’t seem too bad), any attempt towards regulatory clarity – something that’s desperately needed in the world’s biggest economy – is surely a step in the right direction.
1/12
Wow, so first read some good stuff that moves us forward, but a lot of rough stuff.
Overall this gives US crypto clarity but it will have a huge cost and growing pains.
Here’s what I noticed in the first read. https://t.co/Cb1TM0DVJs
— Adam Cochran (adamscochran.eth) (@adamscochran) June 7, 2022
An overview of the new crypto bill: reducing the SEC’s oversight
Here, then, are the bill’s highlights. Much of it revolves around clarifying the crypto-overseeing roles of the two biggest financial regulators in the US – the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
• Under the proposed legislation, most cryptos would be considered commodities, such as Bitcoin (BTC) and Ethereum (ETH), with the CFTC therefore providing most of the regulatory oversight for the industry, instead of the SEC.
This is probably the most significant component of the bill, given the fact the SEC has a reputation for “going after” crypto projects it deems to have illegally skipped registering as securities at ICO stage. (For example Ripple Labs, which is still currently challenging the SEC in court over this very issue).
• The commodity definition is said to likely apply to most leading crypto projects in the top 200 via market cap, such as Cardano (ADA), Polkadot (DOT), Chainlink (LINK) and so on, provided projects file periodic transparency disclosures.
What this would mean for the vast majority of cryptocurrencies, however, seems less clear at this stage.
1/ It’s a big day for US crypto policy as @SenLummis & @SenGillibrand announce the Responsible Financial Innovation Act, a 69-page bill creating a thorough regulatory framework for digital assets.
There’s a lot to like here. Some highlights & next steps:https://t.co/o0zHWUU52J
— Jake Chervinsky (@jchervinsky) June 7, 2022
• The CFTC would also have authority over the spot markets in crypto commodities and would provide clarification of the meaning of a crypto broker. This could ultimately be a good thing for the approval of much desired Bitcoin spot exchange-traded funds (ETF) in the US – currently held back due to the SEC’s grievance of a lack of regulation in spot markets.
• The bill seeks the creation of a combined SEC/CFTC self-regulatory organisation to work with key regulators and facilitate an environment of crypto product testing and innovation.
3/ The top highlight in my view is the inclusion of a modified version of the Digital Commodity Exchange Act (DCEA), a bill proposed earlier this year in the House, making the CFTC the primary spot market regulator for crypto.
This proposal now has bipartisan, bicameral support.
— Jake Chervinsky (@jchervinsky) June 7, 2022
• The act also includes a provision that eliminates the obligation to report crypto gains of US$200 or less to the Internal Revenue Service.
• And the bill proposes a new approach to regulating stablecoins – an area of crypto heavily under the microscope in Washington ever since the TerraUSD/LUNA project completely imploded. The legislation would see stablecoin issuers maintain a 100% reserve, clearing a regulatory path for financial institutions to issue and use stablecoins for payments.
• Furthermore, the act calls for federal commissions and agencies to conduct studies to explore crypto’s environmental impact and the role of renewables, as well as looking into increasing consumer protections and studying the potential and risks of retirement account crypto investing.
But after all that… it’s unlikely to pass into law this year
According to numerous reports, including this one from Coinmarketcap, it seems pretty doubtful this bill will actually make its way successfully through Congress any time soon, especially with US midterm elections coming up in November. Those will likely see bigger fish fried.
That said, the bill could well gain some traction in 2023. At the very least, this is a comprehensive and largely positive document for the industry that it is a solid basis for revision and further collaborative input.
Hopefully by this time next year, the US (and Australia, for that matter) will finally have an innovation-friendly, regulatory framework of legislations for crypto in place.
Finally, just for good measure, here’s another great Twitter thread on the matter, from Gabriel Shapiro – general counsel with crypto research firm Delphi Digital. He hones in on what the bill could mean for DeFi protocols and where it’s potentially falling down a bit at this stage…
(1) it’s overall a good deal on securities law issues:
->most dev teams with a trading token will have to do SEC reporting (b/c tokens sold in connection w/ investment contract);
->reporting is lightweight, should be cheap/fast;
->can stop reporting if decentralized efforts; pic.twitter.com/WOswjYOmGg
— _gabrielShapir0 (@lex_node) June 7, 2022
(2-cont’d) this potential issue with DeFi protocols is the main flaw in the bill currently, and contradicts its overall approach to DeFi–which is to simply order regulators to do reports on how best to handle DeFi
I think this must be fixed pic.twitter.com/u47Ga8uKTz
— _gabrielShapir0 (@lex_node) June 7, 2022
