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A Crypto First: Bill to Decide if Digital Assets are Securities or Commodities Passes

Published July 27, 2023 10:28 AM
Teuta Franjkovic
Published July 27, 2023 10:28 AM
Key Takeaways
  • A congressional committee advanced a bill with bipartisan support that attempts to provide a framework for crypto regulation
  • Two Democrats joined committee Republicans in supporting the measure
  • Since the abrupt failures of Celsius Network, Voyager Digital, FTX, and other businesses, the crypto industry has been targeted by regulators

On Wednesday, July 27, the House Financial Services Committee of the United States approved A crypto bill specifying whether cryptocurrencies are securities or commodities. The measure also seeks to define the Securities and Exchange Commission’s (SEC) purview and strengthen the Commodity Futures Trading Commission’s monitoring of the cryptocurrency sector.

Big Crypto Victory

This markup was actually the first time a crypto regulation measure had been voted on in Congress, and it is widely regarded as a victory for crypto lobbyists seeking regulatory clarity for the industry.

Republicans on the House Financial Services Committee and pro-crypto Democrats like Ritchie Torres, a representative from New York, helped the bill pass.

The crypto bill will now be put to a vote in the Senate, where it might face strong opposition from Democrats.

Congresswoman Maxine Waters, the top Democrat on the House Financial Services Committee, responded to the vote  by stating that she was “disappointed that Republicans have made the unilateral decision to move forward with a massive market structure bill to rewrite our nation’s investor protection laws.” Waters continued by saying that the measure put the interests of the cryptocurrency business ahead of those of consumers and regulators.

The markup is only one of several significant Capitol Hill happenings  this week for the cryptocurrency sector.

The Financial Innovation and Technology for the 21st Century Act , which once more seeks to define the status of digital assets in the US, is due to be marked up by the House Agriculture Committee on Thursday.

Clarifying the Tokens Meaning

The SEC has slowly asserted its control over the cryptocurrency business even though the majority of cryptocurrencies were initially operating in legal limbo and weren’t subject to investor protection laws. That effort intensified last month when the SEC sued cryptocurrency exchanges Coinbase and Binance for failing to register some crypto assets. The two contest the charges.

Most cryptocurrency businesses contest the SEC’s authority, and they have lobbied Congress in recent months to pass legislation emphasizing that cryptocurrencies are more closely related to commodities than securities.

A plan that would have the Federal Reserve establish specifications for the issuance of stablecoins while maintaining the authority of state regulators is also scheduled for discussion by lawmakers on Thursday.

A change was made to the legislation in response to worries raised by some Democrats, notably Waters, that stablecoin issuers would want to be governed by state law in order to avoid tougher regulation.

Giving Bigger Authority to CFTC

Republicans and Democrats alike opposed the proposed market structure measure at the committee’s markup on Wednesday, citing a provision that would give additional authority to the Commodity Futures Trading Commission (CFTC).

They also raised concern over whether the plan would lessen safeguards for consumers included in the country’s decades-old securities regulations, ultimately leaving investors in the country less protected from fraud.

Nevertheless, in his opening remarks, the committee’s chair, Rep. Patrick McHenry (R-N.C.), praised the crypto bill, noting that it was the first time a committee was debating crypto-specific legislation and reiterating that legislation is required to stop the U.S. from “falling behind” other nations in the regulation of cryptocurrency.

“Our comprehensive digital asset market structure legislation recognizes a key issue: digital assets that are not inherently securities may be offered as part of an investment contract, but that does not make them securities,” he stated in his remarks.

Critics of the Act stated that they were more worried about the clauses themselves.

“Worst Piece of Legislation”

Rep. Stephen Lynch (D-Mass.) addressed the committee, “I’ve been on this committee for 20 years and I can say without a doubt that this is the worst piece of legislation that has been presented for markup in that 20 years.”

Democrats were offended by the idea that the CFTC would be given additional power to supervise the market for digital assets without receiving more funds.

Democrats have claimed that the CFTC’s reputation as being less strict on cryptocurrency companies than the Securities and Exchange Commission (SEC) may encourage fraud in the future. Sam Bankman-Fried, the creator of FTX, and other prominent members of the crypto business have previously asked for the regulator to be given more authority to control the industry.

Republicans who supported the crypto bill, however, countered that the CFTC would have the resources to carry out its duties more completely thanks to an additional $120 million in funding that the Agriculture Committee just authorized.

Republicans praised the potential clarity the bill may provide to the cryptocurrency business and asked their fellow senators not to block it.

According to them, the crypto framework will soften what they called the SEC’s harsh crackdown on the digital assets market, encouraging businesses to stay in the United States rather than move to more crypto-friendly countries.

Senators Worried That U.S. Could Miss Important Opportunity

Rep. Tom Emmer (R-Minn.), who is also the majority whip, said that if Congress does nothing, the United States will miss a significant opportunity and suffer as a result.

While the Financial Services Committee is debating stablecoin legislation, the House Agriculture Committee will begin its own markup of the Financial Innovation and Technology for the 21st Century Act.

The Senate amended a necessary defense bill to include anti-money laundering rules for the cryptocurrency business as the House committee votes were taking place.

Senators Cynthia Lummis (R-Wyoming), Kirsten Gillibrand (D-N.Y.), Elizabeth Warren (D-Mass. ), and Roger Marshall (R-Kansas) have introduced an amendment to the National Defense Authorization Act that would require the Treasury Department, Conference of State Bank Supervisors, and other regulators to establish “a risk-focused examination and review process for financial institutions” to evaluate specific crypto-related risks.

They include determining whether the current anti-money laundering reporting requirements are sufficient and whether these institutions are following the law.

The amendment will also mandate that the Treasury Department produce a report examining the function of mixers and “privacy-enhancing technologies or services used in connection with crypto assets,” as well as making any suggestions for legislation that may be required to address any issues.

The Crypto Council for Innovation, which has Brett Quick as its head of government affairs, told CoinDesk that the organization “appreciates the efforts of policymakers to tackle the important questions surrounding crypto and [Bank Secrecy Act]/AML compliance.”

Through a spokesman, she declared: “The amendment offered to the NDAA by Senators Lummis, Gillibrand, Warren, and Marshall is a thoughtful approach, but we continue to seek needed regulatory clarity on which projects, tokens, and activity are overseen by which agencies.”

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