Sen Lummis: Clear Crypto Regulation in the New Year

Senator Cynthia Lummis plans to give the crypto industry the Christmas present it wants.

Late last week, the Wyoming Republican revealed plans to introduce a bill next year that would create a new regulator and provide clear rules of the road for cryptocurrencies.

Sen. Lummis’ bill will call for a new regulator under the joint jurisdiction of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), a senior aide told Bloomberg. As drafted, it would provide clear guidance on whether to classify a cryptocurrency as a security or another asset class, regulate stablecoins, clarify how digital assets are taxed and create consumer protections.

A longtime bitcoin owner, Sen. Lummis is one of the most knowledgeable legislators on the topic and has been pushing for regulation of digital assets beyond just stablecoins and anti-money-laundering (AML) enforcement — the current focuses of legislators’ ire and concern.

The need for cryptocurrency has wide support, as demonstrated by the recent, last-minute attempt to fix a somewhat obscure crypto tax reporting flaw in the $1 trillion infrastructure bill. While the move failed, 99 senators supported it, showing Washington, D.C.’s clear interest in digital assets.

That said, there are also clear divisions opening up between Republicans and Democrats. The GOP legislators in both houses of congress supporting a light-touch regulatory scheme intended to support innovation, while Democrats — notably Sen. Elizabeth Warren (D-MA) — are looking for more aggressive consumer protections and regulatory oversight.

See also: Sen. Warren Calls DeFi the ‘Most Dangerous’ Part of Crypto at Senate Hearing

Another issue Sen. Lummis’ bill could run into is the growing struggle for control of crypto regulation between the SEC and CFTC, whose chairmen have both suggested in recent weeks that their agency should take the lead.

The core issue is that the crypto industry believes most digital assets should be classified as utility tokens rather than investment vehicles. A utility token is used to run a blockchain and the power the DApps on it, and would fall under CFTC control.

Give us clarity

Companies in the cryptocurrency industry have been calling for clear regulation — or at least clear guidance from regulators — on how to determine if a digital asset is a security or not for years. So far, by and large the only guidance that’s been available come from so-called “regulation by enforcement” by the CFTC and especially the SEC.

Read more: SEC Turning Attention To Crypto Exchanges

That has led to more than a few conflicts, notably messaging service Telegram’s 2019 abandonment of a stablecoin project and return of $1.2 billion to TON investors, Ripple’s ongoing lawsuit with the SEC over whether its sale of XRP constituted a seven-year illegal securities sale, and Coinbase’s recent decision to halt a lending product after the SEC threatened to sue.

See more: Coinbase Kills Lend Product Amid SEC Ire

Also see: Ripple CEO Confident SEC Lawsuit Moving in Right Direction

Since 2017, the latter has aggressively pursued a policy that classifies virtually all cryptocurrencies excluding bitcoin and ether as securities — something that its new chairman, Gary Gensler has made clear he will continue and enforce. That has a big impact on the crypto industry, as it means virtually all new token launches must follow the SEC registration guidelines much like a company would in a stock IPO.

A longer-term problem is that if digital assets are securities, sales must be reported as capital gains or losses. At least in theory, that means that using cryptocurrency to buy a cup of coffee would require a capital gain/loss report on the buyers’ taxes.

Beyond that, there have been growing calls in the U.S. and internationally for the regulation of dollar-pegged stablecoins, a type of cryptocurrency many central bankers and governments fear has the potential to undermine national currencies and lead to systemic financial threats.

See more: Global Regulators Could Agree on Crypto Framework in 2022, Says BIS’ Benoît Cœuré

That said, not everyone agrees that new regulations are needed at all.

In a recent interview, Amias Gerety, a partner at QED Investors who was acting assistant secretary for Financial Institutions at the Treasury Department when the 2008-2009 subprime mortgage crisis was playing out, said that new regulations simply aren’t needed.

See here: Ex-Treasury Official: Crypto Fits Under Existing Financial Regulations, So ‘Deal With It’

“There has been a willful desire not to accept laws that are already on the book by the crypto industry broadly,” he told PYMNTS’ Karen Webster. “Laws and regulations should be technology-agnostic. I don’t think that making an asset digital requires any new regulation.”