The long-anticipated crypto bill from Senators Cynthia Lummis (R-Wyo) and Kirsten Gillibrand(D-N.Y.) that balances the need for consumer protections and financial innovation surfaced Tuesday.
The new crypto bill penned by Senator Cynthia Lummis and Kirsten Gillibrand seeks to remove some cryptocurrencies from the SEC’s jurisdiction, placing them under the eye of the Commodities Futures Trading Commission.
A cryptocurrency would be classified as a commodity or security depending on “the purpose of the asset and the rights or powers it conveys to the consumer.” Bitcoin, Ethereum, and other cryptocurrencies with significant shares of the global crypto market cap would be treated as commodities, garnering the status of “ancillary assets.” The CFTC would also oversee crypto spot markets.
The lawmakers propose that Decentralized Autonomous Organizations (DAO) be registered entities to obtain a tax benefit not granted to unincorporated associations. American CryptoFed DAO LLC became one of the first DAOs to file and declare a registration with the SEC in September last year.
Crypto exchanges, defined as entities trading one or more digital assets, also need to be registered, leaving little room for anonymous projects. The bill also increases the compliance burden and cost for crypto exchanges while pushing up consumer transaction costs through fee offset schemes that would see the government take a slice of all transaction costs. Exchanges cannot liquidate consumer holdings in the event of bankruptcy. If an exchange goes bankrupt, the user is eligible to receive all deposited funds. This regulation follows a Coinbase SEC filing raising concerns that the consumer’s funds could be in jeopardy if an exchange went bankrupt.
Companies earning money from the sale of digital assets will need to make certain disclosures to the SEC.
Crypto bill may not see much progress this year
The Lummis-Gillibrand bill dubbed the “Responsible Financial Innovation Act,” may not make much progress this year through the Democrat-controlled Senate, as have other bills, such as the one introduced by Senator Pat Toomey to regulate stablecoins. Lummis has long been a proponent of crypto, last year inviting miners to set up operations in Wyoming,
In the new bill, stablecoin issuers like Circle, which issues USDC, and Tether, responsible for USDT, also need to be registered, with “100% reserve, asset type and detailed disclosure requirements for all payment stablecoin issuers,” effectively excluding algorithmic stablecoins, such as the recently failed TerraUSD stablecoin and the TRON Foundation’s new stablecoin, USDD.
Limitations to bipartisan infrastructure bill
The new bill also introduces limitations to a bipartisan tax infrastructure bill that defined crypto “brokers” very broadly, assigning them onerous tax reporting duties. Users engaging in transactions of $200 or less would be exempt from capital gains tax.
Additionally, crypto miners would not need to pay income tax until they convert their digital assets to cash.