Biden Should Integrate Bitcoin Into Us Financial System, Says Niall Ferguson
The economic historian said that President-elect Biden’s administration should consider Bitcoin as an alternative to a “Chinese-style digital dollar.” Biden Should Integrate Bitcoin Into Us Financial System, Says Niall Ferguson
British economic and financial historian Niall Ferguson said the United States needs to find its own path in adopting cryptocurrencies, rather than “building [its] own versions of China’s electronic payments systems.”
In a Bloomberg opinion piece, Ferguson said Sunday that the current pandemic has generally been good for cryptocurrency adoption, accelerating a “monetary revolution” around the world.
However, the historian noted that China has been “advancing rapidly” in the rollout of its digital yuan and increasing use of mobile payments. Apps like Alipay and WeChat Pay reportedly handle roughly $40 trillion in transactions annually.
The historian believes that these measures by China are serving as a template for other countries developing cross-border payment systems and remittance payments. However, he advised against the U.S. doing so:
“Even governments that are resisting Chinese financial penetration, such as India, are essentially building their own versions of China’s electronic payments systems,” said Ferguson. “Rather than seeking to create a Chinese-style digital dollar, Joe Biden’s nascent administration should recognize the benefits of integrating Bitcoin into the U.S. financial system.”
Ferguson added that authorities in the U.S. already have methods in place to deal with enforcement surrounding Bitcoin (BTC).
The Internal Revenue Service now requires individuals to make a declaration related to their crypto holdings on their returns and may be going after Coinbase users who do not comply with tax and reporting requirements. In addition, the Federal Bureau of Investigation has had its eyes on cases of money laundering using crypto.
“The point is simply that the financial data of law-abiding individuals is better protected by Bitcoin than by Alipay,” said the historian.
The president-elect’s personal views on crypto, central bank digital currencies and Bitcoin are not well known, but there are indications that people in his administration could potentially help guide crypto into a friendlier regulatory framework in the United States. For instance, Biden may be tapping former chairman of the Commodity Futures Trading Commission Gary Gensler to be his deputy treasury secretary.
Gensler Sticks Up For Bitcoin Before Congress, But Doesn’t Say Much New
The Senate held its first hearing on Gary Gensler’s nomination to chair the SEC today.
Today, the Senate Banking Committee held its first hearing on the nomination of Gary Gensler to chair the Securities and Exchange Commission. The role will have major influence on the future of crypto regulation, as the SEC has been a chokepoint for major areas like the status of initial coin offerings, approval of new exchange-traded funds, and crypto firms going public.
In his appearance before the committee, however, Gensler was evasive about any specific changes he would make to the SEC’s crypto policy. He supported prior decisions, like Bitcoin’s (BTC) exclusion from the SEC’s purview, but dodged any real commitment to any changed ICO policy.
“Bitcoin and other cryptocurrencies have brought new thinking to financial planning and investor inclusion,” said Gensler. “I’d work with fellow commissions both to promote the new innovation but also, at the core, ensure investor protection. If something were a security, for instance, it comes under security regulation, under the SEC.”
In logical terms, promising treating securities as securities is pretty tautological. The determination of which crypto assets qualify as securities and, specifically, investment contracts has largely depended on isolated or oblique commentary from SEC staff over the years.
The SEC has also released a trio of no-action letters that have been subject to extensive analysis from the crypto world. The agency has also engaged in several enforcement actions that have, depending on your perspective, tamed or ravaged the ICO market.
Sen. Cynthia Lummis, a known advocate for cryptocurrency, noted that the SEC has “a reputation as a black hole for innovators,” especially when it comes to digital assets. “I do think that technology markets constantly change and evolve and it’s important for the SEC to provide clarity,” adding, “It’s important to provide that whether through guidance or no-action letters.”
Despite Gensler’s fairly noncommittal statements in today’s hearing, the crypto industry has high hopes for his role, especially given his work teaching courses on blockchain at the Massachusetts Institute of Technology in recent years.
The members of the Banking Committee broadly showed bipartisan support for Gensler’s nomination. Several of the Republicans on the committee took the opportunity to oppose plans to expanded requirements for public companies to disclose environmental impact, which Gensler supports, but there’s little reason to believe that net resistance is enough to stop Gensler’s confirmation to become the chairman of the SEC.
Biden Team Will Boost Crypto’s Role In Us Infrastructure, Says Circle CEO Allaire
Allaire also sees political moderation as the best scenario for continued crypto development.
One of the leaders in U.S. crypto is optimistic that the space will grow under the administration of Joe Biden governing from the middle.
Jeremy Allaire, CEO of Circle, took to CNBC’s Squawk Box on Monday to argue that the Biden administration will push crypto forward as part of a broad effort to update infrastructure:
“I think that they will ultimately be supportive because this is an infrastructure change as big as the initial commercial internet, and they’re going to be focused on infrastructure changes that make America more competitive.”
Overall, moderate politics benefit crypto, Allaire reasoned: “You’ve got moderates, both on the left and the right, who I think see this constructively.”
Allaire’s Comments Follow A Twitter Thread On Sunday That Included Similar Comments About Partisan Division:
2/14 The stakes are very high for society and the economy; the far-left wants to paint crypto as an anti-big tech and consumer protection issue, the far-right wants to paint crypto as a national security threat; the libertarians and moderates see the human economic potential.
— Jeremy Allaire (@jerallaire) December 6, 2020
On Squawk Box today, Allaire referenced, in particular, concerns that the left wing in the United States had taken a hard line against new financial tools, especially stablecoins:
“You have on the very liberal end of the spectrum a view that somehow this is not good for individuals who have less access to the financial system, when in fact, the opposite is the case, that this technology — in particular stablecoins — hold promise of opening up and widening access to the financial system more deeply than the existing banking system.”
These comments are likely in reference to a bill introduced last week that would outlaw all stablecoins that do not file the same registrations as traditional banks, including Circle’s own USD Coin (USDC).
In response to a question as to whether recent moves against stablecoins were linked to proposals for the Federal Reserve to issue its own central bank digital currency, Allaire countered that private firms are just much further ahead.
How The Incoming Administration Can Fix Crypto Regulation
As 2020 comes to a close, it is a good time to review the regulatory landscape for crypto assets in the U.S. and provide suggestions to the Joe Biden administration that will be arriving in January 2021. Our advice would be to emphasize clarity, consistency and more collaboration across regulatory agencies.
The biggest impact on crypto policy in the U.S. during the next four years will come from federal agencies – and the regulators staffing them – that are responsible for overseeing our financial system.
As with all administration transitions, key appointments to prominent roles in agencies such as the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are expected to be made in the upcoming months. The CFTC’s head, Heath Tarbert, announced last week that he is leaving early next year, for instance.
* Donna Redel is the former chairman of COMEX, a board member of New York Angels and an adjunct professor of law at Fordham Law School. Olta Andoni is an attorney at Zlatkin Wong, LLP and an adjunct professor of law at Chicago-Kent, College of Law.
Crypto’s speed of innovation continues to outpace regulatory adoption and/or adaption. Hence, flexible, principles-based regulation, such as the approach taken by the CFTC, would create less friction at the intersection of innovation and technology.
Regulators walk a tightrope between balancing the need to protect retail inventors as well as the integrity of markets while simultaneously trying to foster innovation and business growth, especially for startups.
Let’s Summarize Where Regulation Stands Right Now
Securities Law Clarity
We have not received substantial additional clarity from the SEC following its publication of its Framework for Digital Assets (April 2019) which has left many unanswered questions and raised new ones. For example, we are not clear on who or what is, or is not, an “Active Participant,” and how one applies the Howey Test to the decentralized protocols.
Many crypto lawyers have expressed concerns about the Howey Test prong of the “efforts of others” as applicable to decentralized finance (DeFi) protocols. This prong refers to a purchaser’s reasonable expectations of profits.
Specific concerns relate to the cash flows (“dividends”) from staking and the voting rights of governance tokens, both characteristics that enhance the likelihood of turning the token into a security. The latter has made venture capitalists (VC) more reluctant to fully utilize their voting rights.
While the SEC has made enforcement actions and issued at least three no-action letters, these have not provided insight into some of the most common project structures that are prominent today. For example, the results of both Telegram and Kik cases did not answer the big question of when a token would be considered a security.
Furthermore, cases involving PocketFul of Quarters and Vcoin offered only the narrowest pathway for a token to not be considered a security. Therefore, projects and their legal counsels have neither clarity nor consistency as to when a project would be considered “sufficiently” decentralized (or even whether Director William Hinman’s speech is to be considered good guidance).
The guidance provided by the SEC is especially hard to implement in an industry where projects have enormous variation in structure and design. Commissioner Hester Peirce proposed a Safe Harbor and engaged with many attorneys, including ourselves, on ways in which to modify their prior guidance and other regulations, including regulations related to capital formation (e.g. Reg A+), intermediaries like transfer agents and exchanges.
These proposals may be subject to some critique. But we believe they should not be abandoned, as they provide a workable securities law framework and the basis for resolving uncertainty in the U.S.
Custody is a key issue for the continued development of digital assets for both institutional and retail investors. It remains unclear how existing custody rules are applicable to digital assets. The recent letter from Rep. Tom Emmer (R-Minn.) and others to SEC Chairman Jay Clayton emphasized the need for the SEC and FINRA to issue further guidance regarding the custody of digital assets.
Turning to securities on the blockchain, the SEC and FINRA are making slow progress on approvals of Alternative Trading Systems (ATS) that are necessary to trade security tokens. Accelerating the adoption of ATS will encourage innovation of all types of securities on the blockchain and potentially move traditional securities to blockchain.
This would enhance investor protection and potentially address critical governance and voting issues wherein the number of shares owned and the timing of the ownership are difficult to ascertain as we saw in both the Del Monte and Dell cases.
“Given the complexity of the regulatory framework in the U.S., the incoming administration should have a unified strategic approach that is clear, consistent and collaborative.”
Another prominent issue is the approval of exchange-traded funds (ETFs), which are a type of investment funds and exchange products traded on stock exchanges. The industry hopes to put crypto-denominated ETFs on a similar trajectory to gold ETFs, which were first listed in 2003 and now have a market value of $132 billion.
As demonstrated by the demand for Grayscale offerings trading in the secondary markets, retail customers are seeking to invest in SEC-approved products. Additionally, improved liquidity and open interest on the CME, a CFTC regulated exchange, should help assuage the SEC’s concerns relating to pricing transparency.
A key focus of the new administration should be to encourage renewed engagement by the SEC and CFTC with the industry and the institutional participants which will likely have a significant influence on the development of retail markets going forward. [Grayscale is a sister company to CoinDesk.]
It would be helpful if there was more transparency from the SEC’s informal guidance from many of the closed door meetings so that the industry could gain a greater insight and benefit.
We applaud the recent announcement that the FinTech Hub, led by Valerie A. Szczepanik, was advanced to a stand alone division reporting directly to the Chairman. This may further the SEC’s open-door policy of engaging in discussions with the community and projects.
Commodities Law Clarity
The CFTC uses principle-based regulation, in contrast to the SEC’s rule-based regulation. Hence, often the CFTC provides more clarity and flexibility.
It is clear the two main cryptocurrencies, bitcoin and ether, are commodities, according to the CFTC. CFTC guidance to futures commission merchants on custodying crypto creates opportunities for new entrants, as well as established members of clearing houses, to engage in crypto, and enable exchanges to develop new listed products such as lending and swaps.
There was a misunderstanding by many marketplace participants regarding the timing of the implementation date of the final interpretive guidance about what constitutes “actual delivery” of virtual currencies.
The interpretation was approved on March 24, 2020, but COVID-19 delayed both the listing in the Federal Register and the subsequent adoption by some exchanges. This caused some confusion regarding Coinbase’s short time fuse for the implementation of the rule, which contributed to a quick sell-off in crypto assets.
The joint action by the CFTC and Department of Justice (DOJ) against BitMEX to enforce regulations and particularly the Bank Secrecy Act raised the ante for exchanges. The chairman has been clear to emphasize that crypto exchanges are subject to all federal regulations while having stated the CFTC will “continue to do its part to encourage responsible fintech innovation through sound regulation.”
The DeFi “experiment” has neither clarity nor consistency and little transparency in guidance and enforcement while continuing to raise red flags for multiple agencies. As Commissioner Hester Peirce stated during her recent talk at the LA Blockchain Summit, DeFi projects are posing a challenge to the SEC similar to the initial coin offering (ICO) boom of the 2017, while also presenting more difficult legal issues for the regulators to solve.
It is ironic companies that pursue regulatory approval for products and markets are waiting endlessly for an unified direction and approval from the agencies while many DeFI projects proceed without regulatory clarity until some date in the future when another DAO-type report will be forthcoming.
Legal concerns in DeFi are focused on token launches, swaps, exploits or hacks of protocols, smart contract bugs, airdrops and the applicability of proxy rules. The regulatory agencies should be concerned about the potential of systemic risk from leverage in yield farming/lending. The SEC should review governance tokens when rights begin to mirror those in centralized finance (CeFi).
Cautious VCs are still reluctant to exercise their voting rights for fear it may lead to the determination the project is more centralized. We still do not have clarity as to what exactly are the measures to determine the moment(s) in time when a protocol is sufficiently decentralized and importantly when it might morph back to centralized.
DeFi’s almost total lack of know-your-customer/anti-money laundering (KYC/AML) in projects and exchanges also raises questions as to how blockchain technologies can remain integrated with the wider crypto space, which is facing more stringent global Financial Action Task Force (FATF) rules.
The U.S. Treasury Dept. has a portfolio of agencies with crypto nexus that have been neither clear nor consistent. On one hand, we have the recent speculations about moves by Treasury Secretary Steve Mnunchin regarding restriction on hosted wallets; on the other hand, we have Office of the Comptroller of the Currency (OCC) Acting Chairman Brian Brooks putting forth progressive rules for the banking sector and digital assets.
The OCC interpretive letter stated that national banks and federal savings associations have the authority to provide custody services for customers with respect to cryptocurrency and other digital assets.
A clear and consistent policy regarding digital assets would inform the direction of regulation while also being supportive of innovation. An approach that is proactive with respect to new products/markets that want the imprimatur of being regulated under U.S. law would show global leadership and indicate an awareness of competition with other countries.
If the United States wants to be the foremost hub of cryptocurrency innovation it has to have regulation that balances the demands of adoption while considering U.S. values and foreign policy interests. Given the complexity of the regulatory framework in the U.S., the incoming administration should have a unified strategic approach that is clear, consistent and collaborative throughout the federal agencies.
Novogratz Hopes Biden Admin Reverses Trump’s Anti-Crypto Stance
Galaxy Digital CEO calls Trump’s crypto policies “anti-dollar” and “anti-innovation.”
The United States is in desperate need of open-minded cryptocurrency regulations from the incoming Biden administration, according to Galaxy Digital CEO Mike Novogratz.
Appearing in a Thursday segment of CNBC’s Sqwuak Box, Novogratz said the Bitcoin (BTC) bull market has proven resilient to the recent wave of anti-crypto rhetoric coming from Capitol Hill:
“It tells you about how powerful this bull market is […] They are throwing lots at the system, and it’s not actually impacting it.”
Nevertheless, for the cryptocurrency industry to truly succeed in the long run, more regulatory clarity is needed. Referring to the incoming Biden administration, Novogratz said:
“I’m hoping, you know — we get a change of the guard in 20 days — I’m hoping we can get some more open-minded regulators.”
President Trump’s departure from the White House is proving to be a rocky period for the cryptocurrency industry. Last week, the Treasury’s Financial Crimes Enforcement Network proposed new disclosure rules for self-hosted wallets.
In a sign that the Treasury was trying to jam legislation through, it provided only a 15-day comment period, which is much shorter than the typical 60-day period.
In another blow to some industry participants, the Securities and Exchange Commission, or SEC, is suing Ripple for allegedly selling an unregistered security in the form of XRP tokens. The securities regulator made its case in a painstakingly detailed 71-page takedown of Ripple released earlier this week.
The 70-page SEC complaint against #Ripple is a teardown of breathtaking detail and scope. It’s not a petty or vindictive gesture: it’s a well-researched and well-articulated document that alleges a scheme of epic proportions.
— Jon Rice (@JonRiceCrypto) December 22, 2020
Novogratz and others believe that archaic cryptocurrency laws will hinder innovation and adoption in the United States, paving the way for rivals like China to dominate the market. Ironically, this is one of the arguments being used by Ripple to counter the SEC’s lawsuit.
In his interview with CNBC, Novogratz said stubborn crypto laws have “a lot of unintended consequences,” adding that, “it’s going to push a lot of the cool stuff that’s happening in crypto offshore.”
An Online Future For Finance Is Inevitable, Says OCC’s Brooks
Brooks considers the migration of the financial system onto the internet “inevitable.”
The departing leader of the United States Office of the Comptroller of the Currency is convinced that the future of finance is blockchain-native, per a conversation with crypto analytics firm Elliptic on Wednesday.
Described by Elliptic CEO Simone Maini as “a fairy godfather to the crypto industry,” Brian Brooks has been a leading light in U.S. federal policy toward crypto since taking over for Comptroller Joseph Otting in May 2020. Today, he outlined views that follow an opinion piece he wrote for the Financial Times yesterday.
Namely, Brooks took the opportunity to promote his vision of an OCC that checks algorithms rather than bankers for responsible behavior: “Imagine a world where we’re granting charters to softwares as opposed to individuals.”
The vision falls in line with Brooks’ overall work to push forward a national charter for non-depository financial institutions, which detractors have called a “nonbank charter.” In broader terms, the acting comptroller saw the technological change that he is trying to prepare laws for as inevitable:
“My thesis is that it is inevitable that the future of finance will go on the internet like information did 25 years ago, and we need to prepare banks for that world and we need to prepare banking charters for that world.”
Describing recent political deplatforming from social media and payments processors as “chilling,” Brooks went on to argue that:
“Crypto is about freedom. There is no CEO to deplatform. If you didn’t believe freedom mattered last week, you should believe it matters today.”
However, Brooks confirmed what has long been suspected: His time at the OCC will end with the incoming Biden administration. “There will be another comptroller and it won’t be me,” he said.
Report Urges US Government To Focus On Blockchain, Crypto And A ‘Digital Dollar’
Will the new Biden–Harris administration be able to enforce a technology strategy focused on blockchain, cryptocurrency and digital assets?
As the COVID-19 pandemic unfolds, the Biden–Harris administration has begun implementing new strategies to restore the U.S. economy. While notable, implementing emerging technologies, while ensuring data privacy, should also be a top priority for the White House administration to consider.
Don Tapscott, executive chairman of the Blockchain Research Institute — a think tank aimed at advancing blockchain and other emerging technologies — told Cointelegraph that the COVID-19 pandemic has spurred an era, in which government leaders must now acknowledge digital realities: “This is the time for government leaders to develop a comprehensive framework for achieving prosperity, justice, sustainability, social cohesion and good government.”
Tapscott believes that the world is facing the advent of “the second era of the digital age,” which he describes as a trivergance of artificial intelligence, the Internet of Things and blockchain technologies. As such, an innovation push is taking place — one that is forcing federal leaders to become knowledgeable about how these technologies can be enforced on a government level.
BRI Report Emphasizes Blockchain And Self-Sovereign Identity
In an attempt to raise awareness for emerging technologies, the BRI and the Chamber of Digital Commerce — a D.C.-based trade association representing the digital asset and blockchain industry — have composed a 120-page report detailing how U.S. government officials can reimagine its technology strategy and policy.
The document also explains how leaders can minimize unwanted consequences of emerging technologies, such as data abuse or job losses, as a result of AI-powered machines.
The report outlines a series of five priorities aimed at helping the Biden–Harris administration to achieve a long-term digital strategy. They include embracing cybersecurity to protect identity and privacy; understanding the digital dollar and other cryptocurrencies; engaging with citizens and holding officials accountable; stimulating America’s innovation economy; and retooling government services.
While each of these issues is important, Tapscott noted that blockchain technology, in particular, serves as a critical foundational layer. For example, he explained that the COVID-19 pandemic has shown that traditional supply chains are inadequate and as a result, the BRI report suggests, that they should leverage blockchain-based networks capable of providing multi-party trust and transparency.
For instance, the COVID-19 vaccination rollout is referenced in the document, which noted that greater speed and efficiency may very well be possible with a blockchain network:
“With blockchain technologies, it is no longer an impossible mission in mass coordination. U.S. digital leadership, a service mindset with compliance coded into every point of the supply chain process, and a clear map of the service journey could have the American economy on the road to recovery.”
This idea is already being administered in various parts of the world. For example, a United Kingdom-based digital asset tracking provider known as Everyware has been working with the U.K.’s National Health Service on a blockchain system to manage its COVID-19 vaccine storage. Brazil is also looking to leverage blockchain to track those who have received COVID-19 vaccinations.
While impressive, the report suggests that the former Trump administration only made minimal progress in terms of modernization and digitization, stating:
“Most agencies continue to struggle with an abundance of legacy technologies, legacy business processes, and even legacy governance and resourcing processes, each with attendant cybersecurity and cost effectiveness issues.
As a consequence, many agencies cannot fully meet citizen expectations for secure government services.”
Despite this, Tapscott remains hopeful that the new Biden–Harris administration will play a crucial role in ensuring that technology will act in the best interest of U.S. citizens. That being said, the report also emphasizes the importance of self-sovereign digital identity.
According to the document, data has become the new asset class of the digital age, however, while citizens generate data, tech conglomerates are exploiting this information daily. While Facebook is one of the most well-known examples of a company exploiting user data, privacy apps, such as Telegram, have also recently suffered from data leaks.
The report states that every citizen needs a self-sovereign digital identity, noting that the United States should be the first country where citizens truly own their data: “The government should encourage the numerous efforts underway that use blockchain in protecting identity and utilizing user data confidentially.”
The Race Toward A “Digital Dollar”
A central bank digital currency is also mentioned as a priority for the U.S. government to consider. As China quickly works to become the world’s first major economy to implement a CBDC, the report notes that China’s foreign trading partners are already moving to the renminbi as a reserve currency.
Unfortunately, many U.S. government officials remain unaware of the benefits associated with crypto, which may result in the slow implementation of a U.S. government-backed digital currency. J. Christopher Giancarlo, former chairman of the Commodities Futures Trading Commission, told Cointelegraph that a key focus of his professional attention since leaving public office has been on a U.S. central bank digital currency, or what he refers to as a “digital dollar.”
According to Giancarlo, increasing financial inclusion is one of the many reasons why the U.S. should prioritize CBDC experimentation. He explained that a U.S. CBDC can serve as an on-ramp to financial inclusion for populations that have historically been underserved by traditional banking services:
“Along with smartphone wallet services, a digital dollar could be the starting point for new services provided to underbanked populations. It could support important services, such as government-sanctioned digital IDs, alternative credit-scoring tools, savings programs, robo-advising and financial education services. A U.S. CBDC could also be a useful tool in the distribution of government assistance payments, such as social security benefits and food stamps.”
Additionally, Giancarlo pointed out that the COVID-19 crisis revealed fundamental shortcomings in the capacity of existing government systems to swiftly channel financial resources to the non-banked public. “Had a U.S. CBDC been in circulation during the COVID-19 crisis, it would have enabled the sending of monetary relief instantaneously to the digital wallets of targeted beneficiaries,” he explained.
Will The Dream Become A Reality?
While the BRI report presents a valid argument, it remains questionable if the digital priorities outlined can actually be implemented under the new Biden–Harris administration.
Fortunately, a number of “crypto-friendly” officials have been sworn into office under the Biden–Harris administration. For example, Janet Yellen, the U.S. Treasury Secretary, has expressed the need for legitimate use cases of cryptocurrency and decentralized finance. Yellen has also warned about the misuse of cryptocurrencies, urging the U.S. government to combat these issues.
President Joe Biden has also nominated Gary Gensler, a professor at the Massachusetts Institute of Technology Sloan School of Management, to lead the Securities and Exchange Commission. It’s been stated that Gensler has focused much of his attention on blockchain technology, digital currencies, financial technology and public policy as a professor at MIT.
Tapscott shared that the BRI report has already been sent to a number of U.S. government officials and regulators. While he is aware that some opposition may be faced, he remains confident that the document will serve as an overall helpful guide for lawmakers:
“Now is the time for governments to make a turn. In this report, we focus on new administration in D.C., but the information is relevant to countries everywhere. There is a big pressure now for profound change, as our systems and institutions have shown weakness exposed by the pandemic.”
US Lawmakers Introduce Bill To Clarify Crypto Regulations
The proposed bill would create a working group to evaluate U.S. cryptocurrency regulations with input from the SEC and CFTC.
Congress may soon try to clarify digital asset regulation in the U.S.
Reps. Patrick McHenry (R-N.C.) and Stephen Lynch (D-Mass.) introduced legislation Tuesday to create a working group composed of industry experts and representatives from the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to evaluate the current legal and regulatory framework around digital assets in the U.S.
The three other co-sponsors of the bill are Glenn Thompson (R-Pa.), Ted Budd (R-N.C.) and Warren Davidson (R-Ohio).
The ultimate goal of the legislation, called the “Eliminate Barriers to Innovation Act of 2021,” would be to clarify when the SEC has jurisdiction over a particular token or cryptocurrency (i.e., when it is a security) and when the CFTC has jurisdiction (i.e., when it’s a commodity).
U.S. regulations can often appear lacking, with no clear rules on when a certain cryptocurrency is treated as a security or not, with SEC enforcement actions providing much of the guidance in this area. SEC Commissioner Hester Peirce, who is outspoken on the issue, tried tackling it in 2020 by proposing a three-year safe harbor for projects to get off the ground.
Under the terms of the bill, Congress would create a working group within 90 days of the bill’s passage composed of SEC and CFTC representatives.
Non-governmental representatives would come from a financial technology company, a financial services institution, small businesses using financial technology, investor protection groups, organizations that support investments in underserved businesses and at least one academic researcher.
Within a year, this group would be required to file a report analyzing current regulations, the impact they have on primary and secondary markets and how the regime impacts the U.S.’ competitive position.
The report would also look at how custody, private key management and cybersecurity are currently treated under law, and what future best practices for fraud prevention, investor protection and other issues could look like.
The report would also include recommendations for improving primary and secondary digital asset markets, including their “fairness, orderliness, integrity, efficiency, transparency, availability and efficacy.”
Amy Davine Kim, chief policy officer at the Chamber of Digital Commerce, told CoinDesk the legislation aims to establish an organized, comprehensive regulatory framework for digital assets in the U.S.
“It brings together both the SEC and CFTC in a formal way, to work through some of the key issues that have impacted legal clarity in the space for years,” Kim said. “Now we have an opportunity to start addressing them in a methodical way with a number of stakeholders.”
The bill was originally supposed to be introduced Monday and considered under a voice vote by the full House of Representatives, indicating broad bipartisan support, according to Rep. Don Beyer (D-Va.), but was pulled due to procedural actions taken by the Freedom Caucus.
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