Overview of Key Cryptocurrency Regulatory Bills in the United States

Written by: Mary Liu, BitpushNews

According to Forbes, since 2022, U.S. lawmakers have submitted at least 50 digital asset bills to Congress, covering various aspects of cryptocurrency regulation, aimed at overseeing everything from stablecoins to regulatory jurisdiction. This article will outline several key bills that could have a significant impact on the crypto industry if passed.

The Crypto Asset National Security Enhancement Act

Introduced on July 21 by Senator Jack Reed, with co-sponsors Senator Mark Warner (D-VA), Mike Rounds, and Mitt Romney (R-UT), this bipartisan bill focuses on anti-money laundering and sanctions compliance, and if approved, would have a significant impact on DeFi protocols.

Key Points of the Bill:

According to a copy of the draft, the bill aims to make DeFi protocols comply with the same rules as other U.S. regulated financial intermediaries.

The bill will require anyone who "controls" a DeFi protocol to ensure that anti-money laundering programs are effective and comply with Know Your Customer (KYC) policies. DeFi protocol controllers will also be responsible for reporting suspicious activities and ensuring that any sanctioned individuals do not use the protocol.

If the protocol has no identifiable controller, the bill stipulates that anyone investing over $25 million in the development of the protocol will be held accountable.

The bill proposes that, under federal law, "virtual currency kiosks" such as Bitcoin ATMs must comply with KYC laws, and such ATM operators must "at a minimum verify and record the consumer's name and physical address, which should include reviewing official documents that prove nationality or residency, containing a photo of the consumer."

Outlook:

Miller Whitehouse-Levine, CEO of the DeFi Education Fund, believes that this legislation "will effectively ban the development of U.S. DeFi by mandating centralization," stating, "Unfortunately, this approach is not only a disproportionate response to the illegal use of DeFi but also risks undermining existing insights and influence of U.S. law enforcement on peer-to-peer cryptocurrency activities."

However, an anonymous source within Congress revealed to Bloomberg that the bill is the result of bipartisan efforts, particularly as its goal is aimed at enhancing national security, which gives it a better chance of receiving a full chamber vote.

Financial Innovation and Technology for the 21st Century Act

This bill was introduced on July 20 by Republican members of the House Agriculture and Financial Services Committees, aiming to establish a reliable process for determining whether digital assets are commodities or securities. If passed, it would definitively define the roles of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) in cryptocurrency regulation.

The bill has garnered support from key figures, with co-sponsors including House Agriculture Committee Chairman Glenn Thompson (R-PA), Congressman French Hill (R-AR), and Congressman Dusty Johnson (R-SD), with Hill leading the inaugural Digital Assets, Financial Technology, and Inclusion Subcommittee, and Johnson leading the Commodity Markets, Digital Assets, and Rural Development Subcommittee.

Key Points of the Bill:

The bill would grant the CFTC authority over digital commodities, including exchanges and broker-dealers, and clarify the SEC's jurisdiction.

The legislation clarifies how digital assets are classified, stating that merely existing as an investment contract does not make a token a security. The co-sponsors wrote in a statement released with the bill that approximately 70% of crypto tokens should be classified as commodities rather than securities, placing them under the jurisdiction of the CFTC.

Additionally, the process for reclassifying crypto assets previously labeled as securities to commodities will also be established, potentially allowing some projects that were shut down due to past legal decisions to restart.

Outlook:

The bill currently has significant support from influential committees, including the House Financial Services Committee, but may face opposition from House Democrats due to a lack of bipartisan support, as many believe the SEC should play a larger role than currently allocated by the bill.

California Democratic Congresswoman Maxine Waters stated during a hearing on how to clarify industry regulation, "We haven't considered giving such strong support to the CFTC."

American University Washington College of Law Professor Hilary Allen criticized the bill as a Republican effort to "cater to" the crypto industry, arguing that it is not "the most pressing financial or agricultural issue facing the American public." Allen stated that House Republicans are not focusing on urgent Farm Bill issues but are instead racing to appease crypto exchanges, Wall Street, and Silicon Valley venture capitalists, sacrificing the interests of American consumers and retail investors.

Responsible Financial Innovation Act

Forbes reports that the RFIA, reintroduced by Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY), is the most comprehensive and bipartisan-supported cryptocurrency bill in Senate history.

The bill (also known as the Lummis-Gillibrand bill) shares similar goals with its predecessor, aiming to clarify the roles of the SEC and CFTC in cryptocurrency regulation. According to the bill's statement, it also aims to provide greater consumer protection by establishing laws to "prevent another FTX-like incident."

Key Points of the Bill:

Imposes mandatory segregation and third-party custody requirements on cryptocurrency exchanges to explicitly prohibit the mixing of customer funds.

Sets restrictions on digital asset lending and authorizes the CFTC to regulate potential conflicts of interest between cryptocurrency exchanges and their affiliates. Similarly, the legislation requires these companies to provide proof of reserves.

Creates a new classification status ("ancillary assets") for certain cryptocurrencies to clarify the industry, which will include "digital assets sold under an investment contract but not providing economic benefits to their holders as business entities, provided these ancillary assets meet the SEC's disclosure requirements, they will be regulated as commodities."

Clarity on the tax treatment of digital assets is also included, with the Federal Reserve being directed to process bank applications for crypto companies "on a fair basis."

The bill also designates deposit institutions as the only entities allowed to issue stablecoins, adds a definition of decentralized autonomous organizations (DAOs) to tax law, and mandates a consulting committee along with a series of regular reports concerning the industry.

Outlook:

The 2022 version of the Lummis-Gillibrand bill gained significant momentum in the last Congress, but the collapse of FTX sidelined the proposal. Lummis, a crypto supporter who purchased her first Bitcoin back in 2013, is known as the "crypto queen" of the Senate and has played a significant role in making Wyoming a hub for cryptocurrency miners and entrepreneurs. The bipartisan cooperation included in the bill may help its chances of passage.

Digital Asset Market Structure Bill (DAMS)

DAMS was launched on June 1 and is another bill aimed at defining the crypto-related roles of the SEC and CFTC and establishing a framework for regulators to determine whether certain cryptocurrencies are securities or commodities.

The bill has drawn some attention, with Congresswoman Maxine Waters sending a letter on June 26 to Treasury Secretary Janet Yellen and SEC Chairman Gary Gensler, requesting their opinions on the bill.

According to the proposed bill, before a certain crypto token is granted commodity status, it must be certified by the SEC to prove its sufficient decentralization.

Cryptocurrency exchanges will be able to register as alternative trading systems (ATS) with the SEC, and regulators will not be able to deny registration solely based on the platform trading digital assets. DAMS will clarify ATS rules and allow digital commodities and stablecoins to be traded on ATS platforms, and the SEC will be required to allow broker-dealers to custody cryptocurrencies under certain conditions.

Digital Commodity Exchange Act (DCEA)

An updated version of the DCEA was first introduced in September 2020 and revised in April 2022, stipulating that stablecoin providers can register as "fixed-value digital commodity operators," which includes record-keeping and reporting requirements.

This bill grants the CFTC the authority to register and regulate spot exchanges, which will follow the same rules as other commodity exchanges. In the process, cryptocurrencies not considered securities will be redefined as digital commodities, while the SEC will oversee the issuance of crypto securities.

Cryptocurrencies not considered securities will be marked as digital commodities under the CFTC's jurisdiction, and the SEC will oversee the issuance of crypto securities.

Crypto project developers can also voluntarily register with the CFTC, submitting the disclosure information required for trading and listing their assets on exchanges.

Other Bills

Several other crypto bills are under consideration in Congress and have received varying degrees of support, such as the Stablecoin Trust Act and the Stablecoin Innovation and Protection Act related to stablecoin regulation, as well as the Crypto Consumer Investor Protection Act and the Cryptocurrency Exchange Disclosure Act, which were introduced in December 2022 but have seen little progress since.

Senators Elizabeth Warren and Roger Marshall also introduced the Digital Asset Anti-Money Laundering Act last December, which would regulate crypto ATMs and prohibit financial companies from using crypto mixers. Warren stated in February that she would reintroduce the bill, but no action has been taken yet.