The fight between the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) over who will regulate cryptocurrencies just took a turn that is likely to please the industry.
On Thursday (March 24), Sen. Kirsten Gillibrand (D-N.Y.) revealed that she is working with Sen. Cynthia Lummis (R-Wyo.) to create a bipartisan bill that will build the regulatory framework crypto needs to flourish — most notably, by giving the CFTC some of the power over crypto it’s seeking at the expense of the SEC.
“The work we’re doing is going to be a very complex and intensive review of the different aspects of this industry,” Sen. Gillibrand announced at a Politico event in Washington, D.C., on March 24. “Some parts will be regulated by the CFTC, some parts will be regulated under the SEC.”
Read more: At Senate Hearing, CFTC Chair Behnam Steps Up Battle With SEC for Crypto Oversight
That will include clear criteria for classifying digital assets as securities or commodities, Gillibrand added, noting that the crypto market changes and innovates frequently.
It would also look at cybersecurity, bank regulation, consumer protection and stablecoins — the latter will be a big part of the bill, as there is growing concern that stablecoins could endanger the stability of the U.S. financial system. There’s also a particularly deep political divide on the matter — and really all of crypto — with Democrats focused on protecting consumers and the economy, and Republicans on fostering innovation.
Sharp Elbows
The biggest legal problem the digital assets industry has struggled with over the past five years is who regulates cryptocurrencies. More specifically, it has struggled with the SEC’s assertion that virtually all cryptocurrencies are securities under its authority.
That designation — which only one company, cross-border payments firm Ripple, has had the funds or inclination to fight in court — drastically limits how cryptocurrencies can be used in a variety of fields.
See also: Ripple Lawyer Confident SEC Case Will Wrap in April
That includes payments, as any sale of a security comes with capital gains reporting requirements that would require tracking the purchase and sale of every crypto token used in a transaction — meaning even buying a cup of coffee could come with a tax form.
Power-Sharing
Lummis, a longtime bitcoin owner and booster, revealed in late December that she was working on a comprehensive bill to regulate the crypto industry, which currently resides in a grey area of the law.
Related: Sen Lummis’ Christmas Present to Crypto: Clear Regulation in the New Year
That bill, Lummis told Bloomberg at the time, would create “a new organization under the joint jurisdiction of the Commodity Futures Trading Commission and the Securities and Exchange Commission to oversee the digital asset market.”
Which, given the sharp elbows of SEC Chairman Gary Gensler — who has called the cryptocurrency industry the “Wild West” of finance — and CFTC Chairman Rostin Behnam, could be a two-cats-in-a-bag situation.
Gensler, who taught crypto and blockchain at the Massachusetts Institute of Technology (MIT) before taking over the SEC, won’t give up the authority it has seized — but not had confirmed in a courtroom — without a fight.
While Gillibrand revealed that she had joined Lummis on the legislation at the aforementioned Politico event, the news outlet said she predicted a bill would be ready in the next few weeks.
That would put them well ahead of the six-month time frame set in President Joe Biden’s March 10 executive order, aimed at creating a whole-government policy assessment of the crypto industry and its impact on the financial system.
Read more: Biden’s Executive Order Set to Fast-Track Crypto Policy
This means the bill has the potential to shape the debate about how to regulate crypto, even if it does not write the law.
Cracking Down
The SEC has taken a large number of crypto companies to court and stopped a number of business practices in their tracks with the threat of multi-million-dollar fines and enforcement suits that could hobble a startup for years.
That began in July 2017 with its prosecution of initial coin offerings (ICOs), which essentially ended the popular fundraising technique within two years.
Most recently, the agency took on lending programs created by centralized exchanges that provided interest for customers who allowed firms to lend out their capital — a centralized twist on the decentralized finance (DeFi) lending and borrowing platforms that offer peer-to-peer lending.
See also: SEC’s Campaign Against Crypto Lending Grows Beyond Coinbase
The leader of major exchange Coinbase, which prides itself on being compliant with regulators, threw a Twitter-powered fit in September after the SEC threatened to sue if it went ahead and launched a Coinbase Lend program — anger it presumably swallowed on Feb. 14, when the agency massacred competitor BlockFi with a $100 million fine over a lending program.
Related: BlockFi’s $100 Million Settlement With SEC Raises Internal Discussion
The bipartisan bill should also have an easy time settling the poorly-worded tax provision included in the $1 trillion infrastructure bill last year.
That bill would create a definition of crypto “broker” so wide that it could include bitcoin miners and even code writers. The Senate was nearly unanimous in trying to fix it, but ran into procedural issues.
However, Lummis and Gillibrand won’t be on such a tight deadline.
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