Republican lawmakers released a draft proposal that seeks to provide clarity to the digital asset ecosystem in the US.
Republican chairs of the two US House of Representatives committees released a draft bill on Friday providing a clear regulatory plan for crypto assets.
The 162-page draft proposal was co-authored by Reps. Patrick McHenry and Glenn Thompson. The bill proposes to grant the Commodity Futures Trading Commission (CFTC) explicit spot market authority. It also seeks to enable the Securities and Exchange Commission (SEC) to allow crypto exchanges to trade digital securities, commodities, and stablecoins all in one place.
The most important crypto oversight bill?
In a bid to answer the burning questions—what is a commodity?—the bill purports that authorised crypto exchanges should be able to claim their digital assets as commodities. To do this, the exchange would be required to explain in detail how the token works and prove that it’s truly decentralised by showing that no centralised body is steering the project or controls more than 20% of assets.
The bill outlines that the SEC will be allowed to dispute the crypto firm’s claims if the agency has cause to show, in a “detailed analysis,” that the assets belong in its jurisdiction.
The bill does however prohibit the SEC from preventing an alternative trading system from listing digital assets that are considered securities. It also charges the SEC to amend its rules to allow broker-dealers to custody digital assets, according to the draft summary.
The CFTC will be in charge of certification.
For the CFTC, the draft bill sets up a new category of registered business—a digital commodities exchange, where verified crypto commodities can trade. The new exchanges would comply fully with traditional agency protections such as full segregation of customers’ assets, as well as ensuring that assets are not vulnerable to market manipulation.
The CFTC would also exercise authority over direct crypto commodities.
NFTs will be studied.
Detailed studies of decentralised finance (DeFi) and non-fungible tokens (NFTs) were also suggested by the House Republicans, meaning that regulation may be delayed further.
The bill is an attempt to open up discussions between Republicans and Democrats regarding the future of the crypto industry in the United States.
The crypto community has responded positively to the direction of the bill. Coinbase Chief Legal Officer Paul Grewal noted that the bill offers a “strong foundation” for the definitions and jurisdictions regarding digital assets.
Messari founder Ryan Selkis has called the bill “a win” for the crypto industry following last year’s downturn.
The bill comes a few months after EU lawmakers voted in favour of Markets in Crypto-Assets (MiCA). MiCA is a comprehensive legal framework that governs digital assets, harmonising regulations across all 27 EU countries.
Regulators clampdown on industry players.
US-based crypto companies have faced regulatory hardship from the SEC and CFTC since the setbacks in the crypto industry last year. In May, SEC Chair Gary Gensler insisted that existing legal frameworks are sufficient, causing frustration and dissent within the Commission itself.
The Ripple V. SEC lawsuit began last year after the SEC accused the crypto exchange of selling $1.3 billion in unregistered securities via its native token, XRP.
Coinbase has also been in a hot courtroom battle with SEC over the exchange being served with a Wells notice, a warning of impending enforcement action earlier this year.
Other crypto exchanges like Gemini, Genesis, and Kraken are also facing several enforcement actions against them by the SEC. The SEC argues that these companies engaged in the unregistered offer and sale of securities.
Coinbase CEO Brian Armstrong has earlier challenged the SEC with an urgent upgrade to its securities law following China’s recent launch of its digital yuan. He noted that the SEC approach to blockchain technology could be detrimental to the coming generations.
“If we fall short today, the next generation of Americans will pay the price,” he said. “We’re spending billions today to repatriate technologies like semiconductors and 5G infrastructure. We should learn from that mistake.”
He added: “Let’s modernise our financial system and reaffirm our role as a global technology leader rather than abdicating it.”
The bill is expected to be discussed and modified in the coming weeks. For now, it stands as a sure sign of growth in legal framework from Congress.
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