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HEALTH, WEALTH, AND HAPPINESS

June 7, 2022

"This movement toward more [financial] equality ... is primarily a movement where more and more people acquire more and more control, agency, power, opportunity with respect to their own life."

- Thomas Piketty on "The Ezra Klein Show"

(read the full transcript here)

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The Responsible Financial Innovation Act(Sen. Kirsten Gillibrand): Crypto's about to get real.

The landmark bill introduced by the bipartisan team of Cynthia Lummis (Republican Senator from Wyoming) and Kirsten Gillibrand (Democratic Senator from New York) will, if passed, provide the "regulatory clarity" that we've all been waiting for the past several years.

Investor takeaways: If passed, the bill will divide crypto assets into "securities" (centralized projects with tokens that function like stocks, and will be regulated by the SEC) and "commodities" (decentralized projects that will be regulated by the CFTC).

This will give much-needed clarity on what's allowed under U.S. law, and -- if passed -- be a major catalyst for growth in the industry. Of course, right now, it's just a bill:

Click here to watch the path it must take to become law.

There's actually much more in the proposed bill, so it's worth a read. (For the user-friendly writeup, read Sen. Gillibrand's Medium post. You can also read the full bill or the section summaries.)

Hi everyone,

The looming question of who would regulate the crypto markets finally received some kind of clarity this morning following the announcement of a bill that would charge the Commodity Futures Trading Commission (CFTC) with the oversight of cryptocurrencies. 

The Securities and Exchange Commission (SEC) and the CFTC have been at odds over which agency would be deemed overseer of the majority of crypto assets. If the bill passes, the CFTC would be the one in charge.

The Responsible Financial Innovation Act

The newly-drafted bipartisan bill by Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) contains a number of provisions, including the elimination of reporting gains less than $200 to the IRS, a common taxonomy for digital assets, and the responsibility of the majority of cryptocurrencies and exchanges to the CFTC. The bill would also require digital asset providers to register with the CFTC. 

The CFTC already regulates the commodity and financial futures markets, including crypto futures ETFs. So while SEC Chair Gary Gensler has been also looking to expand the regulator’s prowess to include crypto, the bill differentiates between the larger decentralized coins and altcoins that sometimes act like securities.

CFTC Chairman Rostin Behnam has recently stated that he considers both bitcoin and Ether to be commodities under his domain. And following the collapse of TerraUSD, SEC Chair Gensler also said that bitcoin was one of the few coins that should be classified as a commodity and belonged under the CFTC.

The Responsible Securities Innovation section of the bill tries to note the distinction between what coins are commodities (fully decentralized) and which are securities (acting like securities, i.e., being used to build capital, pay dividends, other financial interest in the issuer, or liquidation rights). Coins that act like securities would fall under the purview of the SEC.

Stablecoins

The bill also includes notable changes for stablecoins. Stablecoin issuers would need to maintain a 100% reserve, ensuring that stablecoin owners could liquidate their coins for an equivalent dollar amount at any time. At the same time, the bill would provide a way for banks and credit unions to issue payment stablecoins.  

Other interesting items

The 69-page bill also includes other issues including the energy consumption of the crypto industry and the development of standards regarding the use of the digital yuan on US government devices. The establishment of self-regulated crypto industry associations would be proposed, and an Advisory Committee on Financial Innovation including representatives from the SEC, the CFTC, the Federal Reserve and industry experts would be established. And DAOs would need to be registered, with their founder's identities likely becoming part of the public record. 

The bill also notes that the SEC has 18 months to complete the modernization of the Customer Protection Rule and the Custody Rule that would provide clarity on the custody of crypto assets.

While some parts of the bill make sense and seem inevitable, other parts will infringe on innovation and anonymity for the sake of customer protection. Of course, the bill still needs to go through an extensive and lengthy review process.

Best Regards,

Evamarie Augustine

Market Analyst

Bitcoin Market Journal is a daily newsletter that makes you a better crypto investor. It is created by Evamarie Augustine, Charles Bovaird, Mati Greenspan, John Hargrave, and Alexandre Lores.

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