U.S. Senators Cynthia Lummis and Kirsten Gillibrand have developed a second draft of their comprehensive crypto regulation bill. Chances are slim that it will, as a single bill, advance to becoming a law, but it may still drive a broader conversation within Congress on what sort of provisions smaller pieces of legislation should include.
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The bill introduced last week by Senators Cynthia Lummis and Kristen Gillibrand builds on a first draft introduced a year ago.
Why it matters
While regulators are continuing to try and determine how crypto assets might fall within their various jurisdictions, Congress continues to look at the broader question of whether and what types of new laws might be needed.
Breaking it down
U.S. Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) unveiled a second version of their crypto bill last week, creating a definition for decentralized finance and addressing issues ranging from anti-money laundering provisions to custody rules. The bill also grants the Commodity Futures Trading Commission (CFTC) clearer authority over crypto issuers, giving the Securities and Exchange Commission a defined, but arguably more limited role than it enjoys at present.
It’s not clear to me whether this version of the bill has any greater chance at becoming a law than last year’s version. But it doesn’t have to become a law to be a success. This is a comprehensive bill – if other lawmakers decide to borrow parts, or at least look at parts while they consider their own legislation, this bill could still drive the conversation in D.C., such as it is.
Of course, the biggest hurdle the lawmakers face is their fellow lawmakers: Congress as a whole has shown not much appetite for passing any crypto-specific legislation into law in the current climate, though bills continue to be introduced.
The House Financial Services Committee may be the closest to moving any legislation, with markups anticipated on the stablecoin and market-structure bills currently introduced to that body.
The bill itself addresses a wide swath of the crypto industry’s biggest questions. Perhaps the most important details are defined in sections 4 and 5. Section 4 – titled “responsible commodities regulation” in a section-by-section fact sheet – defines the terms “crypto asset” and “crypto asset exchange” under commodities law, enshrining CFTC authority over crypto spot markets.
This is a key ask by that regulator, and echoes a goal of last year’s version of the bill. One criticism of the first draft came from SEC Chair Gary Gensler, who cautioned that it might “undermine” other rules overseeing securities markets. The lawmakers say they incorporated SEC feedback into this new version, creating another definition for crypto assets which are not securities despite not being decentralized and which depend on “entrepreneurial and managerial efforts that determine” their value. The SEC can challenge whether any given asset is indeed not a security.
Other important provisions include a de minimus tax exemption of up to $200 for payments. This is another major issue for the industry: Right now, every type of transaction faces a capital gains/loss tax, regardless of the amount transacted. Someone buying a cup of coffee for $2.50 would face the same type of tax liability as someone who transacts with thousands of dollars’ worth of crypto.
Beyond the actual literal cost, the tax rules currently in place also require all U.S. persons to keep track of each transaction for when they file their tax returns, an issue for both individual users and the IRS. This type of provision would address these concerns.
Some of these provisions echo bills or regulatory issues we’ve seen before: there are definitions for stablecoins, algorithmic stablecoins, anti-money laundering rules, the definition of a “broker” for tax purposes and settlement finality.
Regardless of its chances of becoming law, this bill should likely generate some discussion. If you have any thoughts the various provisions – whether you think something needs clarity, is unnecessary, will help the industry immensely, etc. – reply to this email and you may see your comment in next week’s edition of the newsletter.
Stories you may have missed
- Crypto Can’t Be Used as Money Due to ‘Inherent Flaws,’ BIS Tells G20: The Bank for International Settlements – the central bank for central banks – told finance ministers in the world’s 20 largest economies that crypto “has so far failed to harness innovation to the benefit of society” and isn’t connected to real economic activity.
- Grayscale Argues Leveraged Bitcoin Futures ETF Approval Shows Spot ETF Should Be Approved: Grayscale (a subsidiary of CoinDesk parent company Digital Currency Group) told the D.C. Circuit Court of Appeals that the SEC’s approval of a leveraged bitcoin ETF application but not its spot bitcoin product is further proof it is acting arbitrarily.
- 13:00 UTC (9 a.m. EDT) The Commodity Futures Trading Commission’s Global Markets Advisory Committee will meet, with asset tokenization included as one of the discussion topics.
- 14:00 UTC (10 a.m. EDT) The federal court overseeing Celsius’ bankruptcy will hold an omnibus hearing.
- 16:00 UTC (12 p.m. EDT) The CFTC’s Technology Advisory Committee will discuss decentralized finance and related issues.
- 17:00 UTC (1 p.m. EDT) The federal court overseeing FTX’s bankruptcy will hold an omnibus hearing.
- (Reuters) Lobbyists and crypto companies are trying to pull together support for crypto legislation, Reuters reports.
- (The Washington Post) Gizmodo published a story written by a large language model tool, commonly referred to as artificial intelligence. An editor, who said he hadn’t seen the story prior to publication, found 18 issues almost immediately. And naturally, the reporters and staff at the publication took issue with the site publishing an AI-written story to begin with.
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