On Tuesday, June 7, 2022, Cynthia Lummis, a Republican senator and rancher from Wyoming, and Kirsten Gillibrand, a Democrat senator and securities lawyer from Albany, New York, will introduce the Responsible Financial Innovation Act. This bill is a broad, sweeping attempt to regulate bitcoin and other cryptocurrencies.
In Lummis’ words, the bill will "fully integrate digital assets into [the] financial system" and bring order to the crypto space.
This is no small feat and has taken many hours consulting with industry and mining representatives to produce legislation that Lummis says, “We hope hits the sweet spot between regulation that is clear and understood and does not stifle innovation.”
“We can’t overregulate,” adds Lummis. “If we overregulate, it [Bitcoin innovation] will go to other countries.”
The legislation will clarify the roles of the two existing regulators, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), and will clarify that miners are free from being broker-dealers.
The legislation builds on top of the current regulatory regime for assets without creating any more regulatory bodies.
“Even the regulators are waiting to see our legislation move forward,” says Lummis. She’s confident they will want as much clarity as possible.
Cleaning Up A Mess Of Existing Cryptocurrency Legislation
Part of the new bill’s mission is to clean up the existing mishmash of bills and legislation (more than 50) that apply to cryptocurrencies, including parts of the Infrastructure Investment and Jobs Act passed last year.
As noted here, “Washington’s efforts to oversee digital assets date back to the Obama administration but remain scatter-shot, rife with holes and overlapping jurisdictions.”
No New Agencies: SEC And CFTC Remain In Charge
Despite recent media coverage suggesting there would be a new advisory body to guide and oversee the legislation, Senator Lummis’ office assured Bitcoin Magazine that there are no new agencies in the bill.
According to a report in CoinDesk:
“The bill would lean on the Commodity Futures Trading Commission (CFTC) as the primary regulator for spot markets and futures, while leaving the Securities and Exchange Commission (SEC) as the supervisor of crypto the can be defined by the so-called Howey Test as securities — specifically, an asset that’s ‘being offered to fund a company in the same way stocks are offered to fund companies.’”
A report on the draft legislation also sees a more expanded role for the CFTC:
“Some details remain in flux, but at a high level the senators’ plan would give the Commodity Futures Trading Commission significantly more power than it currently has. The regulator would directly oversee trading in tokens that meet the definition of a commodity, such as Bitcoin, the world’s largest cryptocurrency. Currently its jurisdiction is mainly tied to derivatives.
“Meanwhile, the Securities and Exchange Commission would police coins that are used to raise money from the public like a stock offering would. It’s unclear whether those turf lines will satisfy some crypto diehards who want to free the asset class from the reach of the SEC’s onerous investor protections.”
The legislation would also exempt people from having to report and pay taxes when they make purchases using cryptocurrency if their resulting capital gains are $600 or less. Some argue that would make it more attractive to actually use bitcoin to pay at a checkout counter.
Mining Is Covered Under The New Bill
As noted in her interview, Lummis hints that legislation will defer to states for how they will regulate bitcoin mining. She praises the way in which miners can help stabilize the grid by using wasted assets and turning them into productive assets.
“Digital asset miners are some of the most innovative players in this space. In my home state of Wyoming, we have miners who are hooking up their rigs to natural gas flares to use energy that is often flared into the atmosphere.
“Others are using solar and wind energy to power their operations. I would urge the White House to approach this with caution as to not stifle innovation with unnecessary regulations.”
Stablecoins Are Included
The bill will significantly increase oversight of tokens and stablecoins, according to Lummis. “Stablecoins will have to be either FDIC insured or more than 100% backed by hard assets.”
“It is a very comprehensive bill, it will be filed on June 7," Lummis said in a recent interview. "It includes coins that are commodities, coins that are securities, it includes stablecoins, it includes a discussion about CBDCs [central bank digital currencies], consistent with what we heard earlier and a small nod to NFTs [non-fungible tokens].”
After the recent Terra Luna meltdown, there is increased interest in regulating stablecoins as both senators are well aware. “All the ups and downs of the market have confirmed why our regulatory framework is best,” Gillibrand said of the bill, “Actually, it emphasized the importance of getting this done now.”
Most reports on the new legislation don’t see it passing through congress before next year. There are at least three congressional committees that will have to review the bill before it goes to Congress as a whole. With congressional elections coming this November, many members of Congress may be reluctant to wade into this territory before going to their constituents.
An “optimistic” Senator Gillibrand told CoinDesk, “she expects to get Senate votes ‘next year at the latest.’”