Thoughts On The New Crypto Bill

The Crypto industry is one step closer to regulatory clarity after a senate bill was released this week. I offer some of my key takeaways.

On Monday, a bipartisan bill called The Responsible Financial Innovation act was introduced via Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY). You can read the 69-page bill here if you have a lot of time to burn and you’re interested in what the entire text says. For those who can’t set aside several hours to read it, a 6-page overview with a section by section summary was also provided.

Before getting into what some of my main takeaways are, I’d just like to say that it seems like a fairly big win for the cryptocurrency industry at first glance. I’d also like to mention that it’s probably important that two senators from different parties and regions were able to come together to propose what I think is a pretty fair attempt at regulatory clarity.

The Takeaways

Maybe the most important part of the document is its attempt to establish jurisdiction for digital assets broadly speaking. The sharks in the federal government have been circling the industry in anticipation of regulatory authority and the bigger departmental budgets that likely come with winning jurisdiction over an industry that many, myself included, believe will continue to grow in the years and decades to come.

This bill aims to split that burden between both the SEC and the CFTC. The further crypto is from SEC chair Gary Gensler the better, IMHO. Classifying every coin or token in crypto as a “security” and granting jurisdiction to Gensler would be theoretically catastrophic in my eyes. That’s not what has been proposed. Quite the opposite actually.

Understanding that most digital assets are much more similar to commodities than securities, the bill gives the CFTC clear authority over applicable digital asset spot markets, which aligns well with their current purview over other commodity markets. Digital assets that meet the definition of a commodity, such as bitcoin and ether, which comprise more than half of digital asset market capitalization, will be regulated by the CFTC.

Bold my emphasis. This is pretty straightforward and I think a big win for most of the assets in the cryptocurrency space that are focused on payments and smart contracts. Certain NFTs are probably different. For instance, the Royal.io music NFTs that I’ve covered in the past are almost certainly securities since they offer what are essentially dividends.

On the emergence of the hotly debated “stablecoins,” this is what the bill’s writers have proposed:

Lummis-Gillibrand establishes 100% reserve, asset type and detailed disclosure requirements for all payment stablecoin issuers. This guarantees that a payment stablecoin holder can always redeem the stablecoin in exchange for the equivalent dollar value, which maintains its value and protects consumers from many of the potential risks associated with stablecoins. The bill also sets forth a detailed, optional framework for all banks and credit unions to issue payment stablecoins.

Again, bold my emphasis. Not only is there no proposed banning of stablecoins, but there is actually potential allowance for banks and credit unions to issue their own stablecoins. This doesn’t seem terribly different from the 1800’s when individual banks issued their own bank notes. Back then, some banks may have had riskier notes than others. This feels similar.

Finally, at the consumer level, the bill seems very friendly to currency users from a taxation standpoint.

As digital assets grow in use and legitimacy, it’s important to make it easier for people to use them in their everyday lives.

The bill proposes a $200 per transaction threshold for taxable events. For instance, if you buy a cup of coffee with $5 in Bitcoin rather than USD, it isn’t a taxable event. If you spend $300 on a monkey picture with Ethereum, it is a taxable event.

Summary

This is really just a brief overview and I’m sure there are many more takeaways and interpretations that will come out of the bill. There is also a long way to go before this bill is the law of the land and I have no doubt there will be chances should it ever get to that point. But judging by how upset the anti-crypto Twitterati seem to be, I think this bill is a step in the right direction for long-term adoption and a big win for crypto-enthusiasts.

Disclosure: I’m not an investment advisor. I merely share what I do and why I do it. You shouldn’t take anything I say as investment advice and always do your own research when making investment decisions.