By Landon Manning
In a bipartisan move, Republican Senator Cynthia Lummis and Democratic Senator Kirsten Gillibrand have cosponsored and introduced the “Responsible Financial Innovation Act.” This legislation aims to provide a comprehensive legal framework for the world of Bitcoin and cryptocurrency by introducing new rules, and most importantly by officially designating the Commodity Futures Trading Commission (CFTC) as the the main body of oversight.
The bill was introduced on June 6, 2022, proposing an incredible number of changes to current cryptocurrency legislation in the United States and touching a wide range of topics. Regulation in the industry has been a haphazard and nebulous process, with various rules being enacted by regulators, legislatures, the judicial system and executive offices of smaller jurisdictions, all responding to wildly different situations according to wildly different motives. More than any of the specific fields that this bill covers, its main aim is to provide a more comprehensive answer to the questions of regulation.
This bill does cover a great deal of specific fields. Running some 69 pages, the text of this bill includes such varied topics as tax codes, energy use, consumer protection and types of digital assets, integration with the financial system, international policy and more. Most importantly, however, the bill has an entire section titled “CFTC jurisdiction over digital asset transactions,” which states that the Securities Exchange Commission (SEC) will have jurisdiction over digital assets considered securities, but those determined to be commodities — such as bitcoin — will be handled entirely by the CFTC. This particular decision has been lauded by some in the industry, since the CFTC not only is much smaller than the SEC, but also has historically been much less strict in terms of imposing restrictions on business. Although bitcoin has already been singled out as a commodity, surprisingly, the bill will also include a framework for the designation of other cryptocurrencies as commodities as well.
The bill does include one notably strict topic: the world of stablecoins. This particular digital asset class, claiming to have valuation pegged to a specific value, has as of yet faced no significant regulation. The result has been a series of assets that are in fact completely hollow, and have been known to collapse in a spectacular fashion. With this bill, stablecoins will need to provide regulators with solid proof that they actually have sufficient capital reserves to issue such tokens.
Other than this one area, however, the bill generally applies restrictions to be as maximally free and pro-bitcoin as possible. Examples include a tax exemption for capital gains tax on bitcoin, provided that the transactions are less than $200 and are actually used as payment for goods or services. This measure flatly encourages people to use this decentralized currency as an actual currency, and not only a speculative asset, which can be a good sign for the future of bitcoin as a medium of exchange. Similarly, bitcoin miners will not be liable to pay capital gains on raw assets that they mined and hold themselves: these assets must actually be brought onto the market and exchanged into fiat currency before their market value can be taxed. With specific protections for the right to self-custody and a gamut of consumer protections with the various exchanges, this bill actively seeks to nurture the growth of this booming industry.
Other than these specific action items, the bill also lays out a number of potential issues that could come up and should be addressed, but that the bill will not issue firm rulings on at this stage. These include such controversial topics as the role of energy consumption, how the digital yuan and other foreign digital assets will co-exist with this new framework as well as other topics.
The progress for the bill seems hopeful, with Senator Gillibrand quoted saying, “It takes a long time to build a regulatory framework for a new industry,” adding that “We think there's going to be a lot of momentum behind this bill, having met with most of the industry stakeholders and the experts of this field and we're just going to work with them over time to continue to improve the bill.” Although it will surely take time for regulations this comprehensive to be passed into law, it seems that the overwhelming consensus in the legislative community is that the future of Bitcoin needs responsible legislation, and it would be hard to ask for friendlier rules. After the tumultuous history that the whole world of cryptocurrency regulation has seen since Bitcoin was first shunned several years ago, it seems that a reception like this will ensure a stable and prosperous future for the world of decentralized currency.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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