A highly anticipated Senate proposal to bring the freewheeling cryptocurrency industry under federal oversight would deliver a win for the sector by empowering its preferred regulator, the Commodity Futures Trading Commission (CFTC), over the Securities and Exchange Commission.
But by giving primary responsibility for crypto oversight to the CFTC, the relatively small agency tasked with regulating a swath of financial markets, from grain futures to more complex products, the bill — which was unveiled Tuesday — sidelines the SEC, whose chair, Gary Gensler, has taken an aggressive posture toward crypto interests.
Gensler argues that most digital assets in the roughly $1.2 trillion market qualify as securities, similar to stock in publicly traded companies, giving his agency the responsibility to police them and their issuers.
The bill from Lummis and Gillibrand rejects that claim, asserting instead that “most digital assets are much more similar to commodities than securities,” a joint news release from the senators’ offices said. Aides to the senators said they worked with staff at both the SEC and CFTC on the language of the bill, and Lummis, in a Tuesday morning interview on CNBC, said she was meeting with Gensler later Tuesday to discuss the matter. An SEC spokesperson declined to comment.
The CFTC already regulates futures contracts for bitcoin and ethereum, the two most popular cryptocurrencies. But the new proposal would give the agency wider power by handing it oversight of the crypto spot market as well — and envisions that market including a wide array of digital coins. The bill would create a process for crypto trading platforms such as Coinbase to register with the CFTC.
“The United States is the global financial leader, and to ensure the next generation of Americans enjoys greater opportunity, it is critical to integrate digital assets into existing law and to harness the efficiency and transparency of this asset class while addressing risk,” Lummis said in a statement.
Gillibrand added that the bill “will establish a regulatory framework that spurs innovation, develops clear standards, defines appropriate jurisdictional boundaries and protects consumers.”
The CFTC is far smaller than the SEC, with about a sixth of its budget. The bill, dubbed the Responsible Financial Innovation Act, would address that resource gap by allowing the CFTC to assess a fee on the companies it oversees. Advocates of tougher crypto regulation nevertheless argue that investors stand to suffer if the SEC is forced to take a back seat.
“The status quo would be better than this bill,” said Todd Phillips, director of financial regulation and corporate governance at the liberal think tank Center for American Progress. “So many of these tokens are securities and need to comply with the regular, usual securities laws, and this bill tries to create a special crypto-specific disclosure regime that I don’t think discloses all the information investors need to fully evaluate whether to purchase a security.”
Crypto industry sources said they expect the bill’s introduction to kick off a prolonged legislative process, one that will almost certainly extend into next year and is likely to result in major revisions. At least four Senate committees could claim jurisdiction over pieces of the measure.
Heads of crypto lobbying groups nevertheless praised the unveiling of a proposal the industry has worked for months to shape behind the scenes.
The bill “represents a milestone moment for crypto policy and a major step forward for the crypto industry in Washington,” Blockchain Association executive director Kristin Smith said. Perianne Boring, chief executive of the Chamber of Digital Commerce, called it a “foundational, comprehensive start.” And Sheila Warren, chief executive of the Crypto Council for Innovation, said the bill amounts to “a significant step forward. The crypto community has called for greater regulatory clarity, and we look forward to continuing to collaborate with policymakers across the political spectrum in the next stages of discussion and work ahead.”
The measure includes a range of other provisions, including changes to the tax treatment of crypto and studying its environmental impact. The bill would exempt crypto holders from paying capital gains taxes when they use digital assets to make purchases under $200.
It also would require that issuers of stablecoins — cryptocurrencies pegged to a traditional financial asset, such as the dollar — maintain reserves fully backing their digital assets, in order to prevent a collapse such as the recent wipeout of terra, which tried to use complex financial engineering to preserve its price.