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U.S. Crypto Bill Finally Introduced: Here’s All You Need to Know

Published July 21, 2023 1:14 PM
Teuta Franjkovic
Published July 21, 2023 1:14 PM
Key Takeaways
  • The U.S. House Republicans introduced a Bill changing crypto oversight from the June draft
  • Many conventional securities are now excluded from the definition of “digital asset” in the revised bill,
  • Some believe revised bill could be bad news for DeFi

U.S. Senior House Republicans have formally presented a bill  that would alter the way crypto markets operate in the United States. Among other things, it would require market authorities to make regulations outlining how “blockchain” and “digital asset” are defined within current financial laws and establish new regulations for exchanges that deal in digital assets.

Regulators Not Allowed to Impose Crypto Ownership Restrictions

The Securities and Exchange Commission and Commodity Futures Trading Commission would be mandated to develop regulations for trading platforms and exchanges that are specifically related to digital assets under the wording of the more than 200-page measure known as “the Financial Innovation and Technology for the 21st Century Act.”

Regulators would not be permitted to impose restrictions on the ownership of digital assets by private individuals.

Up to a point, this ‘crypto bill’ says that digital asset initiatives would be exempt from the usual registration requirements for securities offerings.

Tokens worth up to $75 million could be offered by issuers over the course of a year, but sales to unaccredited investors, who make up the majority of purchases, were prohibited.

Until or unless the project is certified by authorities as being sufficiently decentralized to the point where the token would convert to a commodity, token issuers would still be required to disclose information with the SEC, including annual and semiannual reports on the project.

Conditions For Token Issuers

Issuers would be required to keep their purchases to 5% or less of a person’s annual income or net worth, whichever is less. Regardless of income, an issuer may not sell more than 10% of its tokens to a single buyer in order for the exemption to be valid, and the transaction could not involve any other digital assets or conventional debt or stock.

Additionally, the crypto bill includes clauses that expressly forbid the mixing of customer assets—a charge leveled against FTX and other significant crypto firms—as well as additional measures for the protection of customer money and property.

Token issuers would need to be registered in the United States, have a business strategy, and not have been the target of any SEC enforcement actions in the five years prior to launching a token under the exemption.

Securities backed by digital assets may be traded on alternative trading platforms under SEC oversight. Under the CFTC’s watchful eye, digital commodities would be exchanged on digital commodity exchanges.

Preparations For the Coming Week

America’s position as the world leader in innovation and technology adoption is at a critical juncture at this time. In addition to having the potential to transform our financial system, the blockchain technology that underpins digital assets also shows promise as the foundation for the next iteration of the internet, according to House Financial Services Chair Patrick McHenry, R-N.C.

“Today’s introduction of the Financial Innovation and Technology for the 21st Century Act marks a significant milestone in the House Committees on Agriculture and Financial Services efforts to establish a much-needed regulatory framework that protects consumers and investors and fosters American leadership in the digital asset space,” the committees said in a statement.

Glenn ‘G.T.’ Thompson, R-Pa., chair of the House Agriculture Committee, and lsited author of the bill, said.

The crypto bill is being introduced in the midst of an especially heated regulatory environment between the industry and market authorities.

In addition to the nearly 150 enforcement actions the SEC has taken involving digital assets, Coinbase has filed a lawsuit against the agency for its response to a request for regulations specific to the cryptocurrency industry.

The SEC has also filed a lawsuit against the trading platform over claims that it listed unregistered securities, among other aspects of the U.S. crypto industry’s operations.

The House Agriculture and Financial Services Committees intend to discuss and vote next week on sending the legislation to the full House of Representatives.

The law and a bipartisan comprehensive framework for stablecoins in the US will be discussed at a meeting of the Financial Services Committee on Wednesday, while the Agriculture Committee’s discussion of its section of the markets bill is anticipated to take place on Thursday.

With Democrats in charge of both the Senate and the White House, it’s uncertain whether the legislation will have enough Democratic support to pass into law.

Is SEC Dragging Its Feet On the US Crypto Market Law

The SEC’s lack of cooperation, according to House Republicans, is a warning that it may be challenging to secure enough Democratic support for the market legislation to become law.

It may be difficult to convince Democrats to support the legislation, which is essential if it is to have a chance of becoming law this Congress. The SEC has yet to offer the substantial technical comments required for the extremely complex bill.

In light of the House Financial Services Committee’s impending consideration of legislation to establish a comprehensive framework for stablecoins and the crypto markets in the United States, SEC officials briefed the staff of Democratic members of the committee last week.

They discussed their views on the regulation of digital assets.

According to a Republican member of the Financial Services Committee’s staff, SEC personnel have been cooperative, and SEC Chairman Gary Gensler and Chair of the House Financial Services Committee Patrick McHenry, R-N.C., have had “good conversations.”

However, the SEC had not given all the technical support specified in the bill.

It’s been over six weeks, the employee claimed. “We haven’t gotten what I’d call the typical technical assistance,” the author said.

The staff member further stated that the CFTC had provided further information to congressional staff writing the legislation. The staff member did, however, grant the SEC some leeway, stating that they weren’t certain that the SEC was purposefully taking its time.

Their plan would give the organizations in charge of them the authority to enforce the distinction between a security and a commodity for the first time.

Additionally, the proposal aims to provide the Securities Exchange Commission more authority to take a more assertive approach to maintaining consumer rights.

June Draft Was Crucially Changed

The general counsel of Delphi Labs, Gabriel Shapiro, pointed out a modification from the June discussion draft that, in his opinion, “completely alters the value prop[osition] of the bill” and would reintroduce the ambiguity it is intended to address.

A variety of conventional securities, including stocks, bonds, “transferable share[s],” “certificate[s] of interest or participation in any profit-sharing agreement,” and others are excluded from the definition of “digital assets” on page 10 of the updated law.

Shapiro said on Twitter that a variety of assets found in the decentralized finance (DeFi) market, like Compound’s cTokens or Liquid Collective’s Liquid Staking Tokens, “would be highly regulated under this provision even if [they] are] not under current law.”

Lummis Says This Bill Could Prevent Repeating FTX Mistakes

Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., filed a revised crypto bill this week, calling it “the most comprehensive” law to address the digital currency market. The original bill was unveiled months before FTX collapsed last fall.

“We understand how to control it. In an interview conducted at her office in the Senate Russell Building, Lummis remarked.

“We know how to safely identify what is a commodity and what is a security. “We can give this industry enough consumer protections and safeguards so that something like the failure of FTX would probably not happen in the United States,” the author claims.

With this plan, a distinction between a security and a commodity would be made for the first time, and enforcement authority would be given to the agencies that overlook them.

“Over the past year, we worked together and with key stakeholders to improve our framework — we added strong new consumer protections and anti-money laundering provisions, delivered additional resources to regulatory agencies so they can enforce new regulations, and created clarity so that businesses can innovate responsibly,” said Gillibrand in a statement .

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