The Biden Administration isn’t the only government body paying attention to cryptocurrency. For months, U.S. Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) have been working across the aisle with other congressional leaders to draft the Responsible Financial Innovation Act, also nicknamed the Lummis-Gillibrand bill.
On Tuesday, June 7, they introduced the bill that aims to “create a complete regulatory framework for digital assets that encourages responsible innovation, flexibility, transparency and robust consumer protections while integrating digital assets into existing law.”
If this bill becomes law, it will address many concerns about the crypto market – including establishing guidelines for stablecoins and outlining tax regulations. It also provides a framework to help promote the utilization and acceptance of cryptocurrencies by consumers and businesses in the U.S.
Under the terms of the bill, the Commodity Futures Trading Commission (CFTC), which already supervises commodity markets (gold, oil, corn, etc.) — including futures contracts for bitcoin and ethereum — would be empowered to regulate the crypto spot market. Crypto buying and selling platforms would also need to register with this agency.
The Securities and Exchange Commission (SEC), meanwhile, would continue to monitor publicly traded companies and their related equities, along with crypto assets classified as “securities.” To qualify as such, a digital asset must give its holder interest in a business equity, profit share, interest or dividend payments, or other financial interests derived “solely from the entrepreneurial or managerial efforts of others.”
Today’s news is the first step in a long process that is likely to continue well into next year. “It takes a long time to build a regulatory framework for a new industry,” Gillibrand told CNBC on Tuesday.
The bill may be altered, changed, amended, or split into smaller action items as it moves through Congress, but here are some of the key initiatives from the draft released today. These features are a good barometer of what lawmakers are focused on at present:
The bill recommends a consistent definition of two types of digital assets: virtual currency and payment stablecoins. Both types are considered natively electronic assets with economic, proprietary, or access rights or powers. Virtual currency, specifically, is defined as a digital asset used “primarily” as a medium of exchange or store of value that is not backed by an existing financial asset.
Similarly, the bill refines the definition of the Howey test — used to clarify whether an asset is a security — with a crypto-specific interpretation.
Under the terms of the bill, transactions under $200 can be exchanged tax-free. This encourages the use of crypto as a true utility that changes hands between consumer and business.
To help eliminate future collapses in the stablecoin market, the bill recommends moving toward “100% reserve, asset type and detailed disclosure requirements for all payment stablecoin issuers.” Under these guidelines, a stablecoin holder will be entitled to redeem these coins for the equivalent dollar value. Under the bill, banks and credit unions would be able to issue payment stablecoins.
It calls for additional clarity and legal guard rails for how customers’ coins can be secured in the event of a holding exchange going bankrupt. It also gives individuals the right to keep and control their owned digital assets.
It requires the Federal Energy Regulatory Commission to support a study on the power consumption of mining activity in an effort to encourage both technological innovation and reduced energy waste.
The bill advocates the creation of an advisory committee of subject matter experts, advocacy groups, and other stakeholders focused on consumer protection and education, as well as financial inclusion.
The nation’s lawmakers are increasingly focused on cryptocurrency as it becomes clear that the alternative currency is here to stay. Not only that, but it is quickly becoming a vital part of the financial services industry. As a result, regulatory guidelines must emerge to ensure crypto consumers are afforded a similar peace of mind as they are with traditional financial assets.
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