The Commodity Futures Trading Commission (CFTC) appears to have won another round in its fight with the Securities and Exchange Commission (SEC) for control of crypto oversight.
The leaders of the Senate Agriculture Committee on (Wednesday) Aug. 3 announced a bipartisan bill that would give regulatory control of the two largest cryptocurrencies, bitcoin and ether, to the CFTC.
The committee’s chairwoman, Michigan Democrat Debbie Stabenow, and ranking minority member John Boozman (R-Arkansas) would give the CFTC the power to regulate the spot markets for digital commodities, a new asset class. It currently oversees the market for crypto derivatives like futures and swaps.
Among other things, the bill specifically excludes transactions in which a cryptocurrency is used solely as payment for goods or services.
But it isn’t the only crypto fight on Capitol Hill.
Stablecoins have been prominent in the crypto regulation discussion, both in relation to a central bank digital dollar — the digital dollar — and more recently over who can issue them: federally insured federal banks, state banks and institutions or other companies.
While the issue is already prominent thanks to an increasingly influential crypto lobby, several key pieces of legislation focus specifically on stablecoins, which are seen as a threat to the dollar by some lawmakers and an opportunity by others. Beyond that, May’s $48 billion collapse of the Terra/LUNA algorithmic stablecoin and the subsequent wave of bankruptcies cost consumers enough money to warrant extra attention.
Read more: How a Stablecoin’s $48B Collapse Rippled Across Crypto
CFTC vs. SEC
The biggest question is whether cryptocurrencies are securities or commodities.
The CFTC and SEC have been more actively elbowing for control of crypto this year, as SEC Chairman Gary Gensler stepped up efforts to see every cryptocurrency except bitcoin declared a security under his agency’s purview.
CFTC Chairman Rostin Benham, meanwhile, believes that two cryptocurrencies, bitcoin and ether — which together account for about two-thirds of cryptocurrency’s $1.08 trillion market capitalization — are decentralized enough that they do not meet the definition of a security. He has not touched on any other tokens, however.
Read more: SEC, CFTC’s Crypto Aspirations To Be Tested by Courts, Lawmakers
The crypto industry has been pushing for CFTC control, which it believes would be less stringent and make it easier to launch and sell digital assets. It contends that Gensler is trying to regulate by litigation, notably via the SEC’s ongoing lawsuit against cross-border payments firm Ripple and last month suing a Coinbase employee on insider trading allegations.
See also: SEC Turns Up the Heat on Coinbase
Here’s a look at the three biggest bills that have been discussed or introduced in the House and Senate and what their impact would be.
Senate Agriculture Bill Favors CFTC
The legislation introduced Wednesday (Aug. 28) by Stabenow and Boozman is notable for a couple of reasons, starting with the influence its authors wield. The pair probably won’t have much trouble passing the bill, drafted with considerable input from the CFTC’s Benham, out of committee.
It would expand the Commodity Exchange Act to include a definition of a “digital commodity” which would include bitcoin and ether but not tokens deemed to be securities — and also define a “digital commodity broker,” “digital commodity custodian,” “digital commodity dealer,” and “digital commodity trading facility” and require them to register with the agency, providing the same disclosure requirements as any other commodity.
Payments are explicitly cut out of CFTC control. The legislation would give the agency “exclusive jurisdiction over digital commodity trades, except for transactions in which a merchant or consumer is using a digital commodity solely for the purchase or sale of a good or service.”
Another notable provision would preempt state laws requiring registration under “money transmission, virtual currencyand commodity brokers” statutes.
Lummis-Gillibrand Regulatory Framework Favors CFTC
The most substantial cryptocurrency legislation so far was first proposed by Cynthia Lummis (R-Wyoming) and Kirsten Gillibrand (D-New York) earlier this summer. It creates a broad framework covering cryptocurrencies, stablecoins, decentralized finance (DeFi) and tax policy.
See also: Senate Crypto Bill Debuts, and Crypto Industry Gets Big Wins
It will create a clear definition of what makes a cryptocurrency a commodity or security, Gillibrand said. It says that “most digital assets are more similar to commodities than securities, the bill gives the CFTC clear authority over virtual currency spot markets, which aligns well with its current purview over other commodity markets.
There are two other key features: First, it would exclude a purchase of under $200 from the capital gains tax that is required at present. That means even buying a cup of coffee would require the crypto owner to calculate and report any capital gain to the Internal Revenue Service for each purchase and pay a tax of up to 20%.
Second, stablecoins would have to be backed 100% by a reserve of fiat currency and highly liquid investments like short-term Treasuries.
Lummis is a member of the Senate Banking Committee, which oversees the SEC, and Gillibrand is on the Senate Agriculture Committee, so the bill has a hook in both relevant committees.
In the House
In July, leaders of the House Financial Services Committee tried to pass a standalone stablecoin regulation bill in the wake of the Terra/LUNA collapse, but they eventually agreed that they would not be able to agree on its terms this year.
Read more: Reports: House Committee Close to Vote on ‘Payments Stablecoin’ Bill
It would define “payments stablecoins” and also require a 100% backing of cash and treasuries.
The biggest question was issuance. The President’s Working Group (PWG) on Financial Stability in November pushed for federally insured banks only, but more recently stepped back to federally regulate financial institutions. Many members of Congress want state chartered and regulated banks and financial institutions to be able to issue them as well. And not everyone agrees with the bank requirement at either level.
The bill being negotiated by House Financial Services Committee Chairwoman Maxine Waters, D-California, and ranking minority member Patrick McHenry, R-North Carolina, called for a new player — the Federal Reserve — to oversee stablecoins. It is likely to allow both state and federally regulated banks and institutions to issue stablecoin, but it specifically excludes commercial firms such as the tech giants
Another bipartisan House bill would define the difference between securities and ”digital commodities” and “digital commodity exchanges” and put them under the control of the CFTC.
See also: Bipartisan Bill Paves the Way for CFTC’s Crypto Oversight
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