The US Capitol Building in Washington, DC
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Despite the enthusiasm of Wall Street and Main Street to own cryptocurrency as a new investment idea and store of value, the speed with which cryptocurrencies entered major US markets caused commensurate concern to US regulators, who were only equipped with old police securities laws. It is an industry that many still refer to as the financial “wild west”.
But after months of research, industry consulting, and bipartisan teamwork, Sens. Kirsten Gillibrand and Cynthia Loomis said Tuesday that they are ready to launch their first major attempt to put protective barriers around the emerging industry.
Their bill, titled the Responsible Financial Innovation Act, amounts to a regulatory reform that would classify the vast majority of digital assets as commodities such as wheat, oil or steel. As such, the bipartisan legislation would leave the bulk of the oversight responsibility to the CFTC and not the Securities and Exchange Commission, as some had predicted.
Gillibrand, a New York Democrat and member of the Senate Agriculture Committee, and Loomis, a Wyoming Republican on the Banking Committee, said the legislation is the culmination of months of cooperation in the House and Senate and represents a critical first attempt to structure digital asset markets with long-overdue legal definitions. .
Their offices described the bill as “historic bipartisan legislation that will create a complete regulatory framework for digital assets that encourages responsible financial innovation, flexibility, transparency, and strong consumer protection while integrating digital assets into existing law.”
A cornerstone of the legislation is how it defines the vast number of digital assets available to US investors and consumers.
With a few exceptions, the law defines digital currencies as “secondary assets,” or intangible and exchangeable assets that are offered or sold along with the purchase and sale of a security.
Gillibrand and Lummis employees explained that their law treats all digital assets as “secondary” unless they act like security the company issues to entice investors to build a capital pool.
Cryptocurrencies and other digital currencies will not be treated like traditional securities regulated by the SEC, unless they give their holder privileges that corporate investors enjoy such as dividends, liquidation rights or a financial interest in the issuer, the offices told reporters.
They added that the bill is the product of months of debate with fellow senators, including Republican minority leader Mitch McConnell and Pat Tommy, as well as Democrats like Ron Wyden.
re \ come back. Ro Khanna, a Democrat who represents Silicon Valley, also had his weight.
“My home state of Wyoming has put a lot of effort into state leadership in regulating digital assets, and I want to see this succeed at the federal level,” Loomis said in a press release. “As this industry continues to grow, it is critical that Congress carefully craft legislation that promotes innovation while protecting consumers from the bad guys.”
“The Lummis-Gillibrand framework will provide clarity to both industry and regulators, while also maintaining flexibility to account for the ever-evolving digital asset market,” Gillibrand added in the same release.
Together, the CFTC and the SEC regulate large segments of the US market and act as powerful Wall Street regulators. The former oversees the buying and selling of raw commodities such as corn, coffee, gold, and oil, while the latter oversees companies, executives, and securities seeking to raise capital from the public.
While it is up to Congress to decide how government agencies will monitor US markets, the Securities and Exchange Commission and its chair, Gary Gensler, have led a public crusade in support of stricter crypto rules for more than a year.
“Right now, we don’t have enough investor protection for cryptocurrency financing, issuance, trading or lending,” Gensler told lawmakers in September. “Honestly, at this time, it feels more like the Wild West or the old world ‘buyer beware’ that existed before the securities laws were enacted.”
Representatives for Lummis and Gillibrand said they worked with the Securities and Exchange Commission on their plan, spending weeks trying to address concerns expressed by the regulator’s lawyers that the legislation would cede too much power.
They also said that fees collected from digital asset issuers will play an important role in increasing the CFTC’s budget to withstand what is expected to be a deluge of regulatory oversight.
While Gillibrand and Lummis have experience working with the CFTC and SEC, respectively, it wasn’t clear until Tuesday morning what each organization thought about the new legislation. Neither the CFTC nor the Securities and Exchange Commission immediately responded to CNBC’s requests for comment.
Input from both agencies is critical to the legal debate in the United States about how to identify cryptocurrencies and other digital assets.
For example, the Gillibrand and Lummis bill defines a “digital asset” as a genuine electronic asset that grants economic or proprietary rights or access rights and includes virtual currencies and fixed currencies for payment.
A virtual currency is later defined as a digital asset that is used “principally” as a medium of exchange, unit of account, or store of value and is not backed by an underlying financial asset.
These definitions, while often laden with legal jargon, have a profound impact on how cryptocurrencies are monitored and are therefore of paramount importance to the most powerful players in the growing world of cryptocurrency pressure.
The industry has employed more than 200 officials and employees from the White House, Congress, Federal Reserve and political campaigns, according to the Technical Transparency Project. Meanwhile, crypto executives have contributed more than $30 million to federal candidates and campaigns since the start of the 2020 election cycle, according to documents kept by the Federal Election Commission.
Lummis and Gillibrand would like to work with their peers to develop their countries into blockchain and crypto havens.
In the Empire State, New York City Mayor Eric Adams invested his early salaries in bitcoin and ether, while he was MP. Richie Torres, a Democrat who represents the Bronx, said in March that his city “must and must embrace crypto if it is to remain the financial capital of the world.”
Henceforth, Wyoming amended its laws in 2019 to create a new type of banking charter called a Special Purpose Depository Corporation to accommodate cryptocurrency and trading platform startups, and remains on a firm path to diversify into finance and away from legacy industries like coal and gas.
Staff from both senators promoted key features of the bill in a call with reporters, including some tax breaks that would protect stablecoin holders from having to report income changes every time they make a digital currency purchase.
These disclosures will inform investors about issuers’ experience developing digital assets, issuers’ past asset price history, projected costs, descriptions of management teams and the obligations of each issuer.
Although staff described the bill as a mixture of input from politicians on both sides of the political aisle, they acknowledged that its size and complexity could compel lawmakers to break it up and try to pass its components piece by piece.