Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) have reintroduced a cryptocurrency oversight bill that emphasizes the role of the Commodity Futures Trading Commission (CFTC) while sidelining the U.S. Securities and Exchange Commission (SEC). The bill mandates that crypto exchanges be supervised by the CFTC and all stablecoin issuers become regulated depository institutions.
The bill, which is the most comprehensive crypto regulatory effort from the U.S. Senate to date, seeks to address the boundary between securities oversight and other areas, effectively dictating the roles of the SEC and CFTC in crypto regulation. Essentially, the bill asserts that assets not offering a financial stake in a company should not be classified as securities, even if they profit from entrepreneurial and managerial efforts influencing their value.
It proposes that crypto issuers make biannual disclosures to the SEC. However, tokens not representing debt or equity or other forms of ownership would remain outside the SEC’s jurisdiction unless a court challenge, as provided for in the bill, goes in the agency’s favor.
The revised bill positions most crypto tokens within the CFTC’s remit and extends the agency’s authority over crypto trading. Both the CFTC and SEC would receive equal funding of $500 million and have a joint role in a new self-regulatory organization (SRO) for crypto.
The proposed legislation envisions the creation of an SRO, akin to the National Futures Association or the Financial Industry Regulatory Authority in the securities sector. The SRO would be tasked with establishing industry standards and enforcing penalties for infractions. The proposal also demands full segregation of customer assets and introduces new risk-management standards for crypto lending, explicitly prohibiting “rehypothecation.”
As for stablecoins, only banks or credit unions regulated by the federal government or the states would be allowed to issue them. The legislation offers provisions for existing issuers to obtain licensing for this role. Additionally, the bill proposes a stringent definition for decentralized finance (DeFi) that sets rigorous regulations for when a software project evolves into a more centralized business effort requiring registration as an exchange.
The bill is seen as an attempt to bridge the gap between parties, incorporating provisions drawn directly from proposals from other lawmakers, including known crypto critic Sen. Elizabeth Warren (D-Mass.). However, while the industry awaits further progress, the SEC under Chair Gary Gensler continues its enforcement campaign against major crypto companies, accusing them of operating illegally.
The Lummis-Gillibrand proposal may get broken down into smaller components or incorporated into other bills, with every passing month adding political weight to major moves due to the upcoming presidential election.
The proposal also contains several noteworthy tax benefits for crypto investors. For instance, they wouldn’t be taxed on crypto obtained from mining, staking, forks, or airdrops until they liquidate these assets. Additionally, any crypto payment used to purchase goods or services worth less than $200 would be exempt from tax, potentially encouraging the use of cryptocurrencies as actual currencies without tax implications.
