The All American Cryptocurrency Bill
US Senators Cynthia Lummis of Wyoming and Kirsten Gillibrand of New York proposed the All American Cryptocurrency Bill, which appears to provide the groundwork for a regulatory framework around digital assets in The United States. Formally known as the Responsible Financial Innovation Act, the bill proposes a comprehensive legal framework for digital assets that encourages responsible financial innovation, flexibility, transparency, and strong consumer safeguards while incorporating digital assets into current legislation.
There is no bill number or committee assigned to the legislation yet. When it comes to legislation the early draft is only a beginning point.
The bill gives crypto markets some much-needed clarification by classifying most digital assets as commodities.
U.S. Senators Cynthia Lummis of the Republican Party and Kirsten Gillibrand of the Democratic Party presented the bill.
The most significant takeaway from the bill is that most cryptocurrencies, such as Bitcoin and Ethereum, will be classified as commodities, and thus come within the CFTC's jurisdiction rather than the SEC's.
Due to the upcoming midterm elections in November, it seems unlikely that the bill would be implemented fast.
Ethereum co-founder Vitalik Buterin is among many who have condemned the bill.
Critics of cryptocurrency frequently label it as lawless, but advocates argue that no clear regulations apply to this new technology. Updates to US legislation that reflect the reality of this new manner of conducting business have been requested by entrepreneurs and investors.
As of mid-April 2022, 18% of American adults claimed to hold virtual currency in some manner. However, the share of young adults is substantially greater because everyone with an internet connection may participate in and benefit from digital assets. Many people have benefited from this, but there are substantial financial hazards in the current uncontrolled market.
Consumers, companies, national security, and our financial system are all in danger, as with any new technology. Because of these dangers, good regulation is essential. In addition, without a clear and defined legislative framework to govern their business practices, digital asset companies may be forced to expand their operations internationally outside The US.
The Bill serves as a foundation for regulating cryptocurrency while also giving a structure for the space's innovation to continue on American land.
This bipartisan (political act in which both Democrats and Republicans agree about all or many parts of a law.) proposal will cover CFTC (Commodity Futures Trading Commission) and SEC (U.S. Securities and Exchange Commission) authority, as well as stablecoin rules and the tax status of digital assets.
The bill does a good job of categorizing the many parts of the cryptoverse, providing black-and-white definitions for DAOs, smart contracts, exchanges, and other terms. It appears to call for the adoption of certain disclosure requirements by December 31, 2025, but it also asks for the IRS rule legislation on unrealized crypto profits to be accelerated until December 31, 2023.
The bill also calls for even more documentation about the nature of digital asset holdings and returns made, rather than merely a section somewhere on a tax form.
Crypto Tax Rules And Structure
As the usage and validity of digital assets grow, it's critical to make it easy for people to use them in their daily lives. The bill establishes a de minimis (a legal term that refers to something that is too little to be significant or taken into account) exemption, allowing consumers to buy digital assets without having to account for or disclose revenue. The bill also explains the tax status of various players and activities in the virtual currency system, including the fact that miners and validators are not considered "brokers" for tax reasons, and that their rewards are not considered income until they are redeemed for cash.
There is currently no agreed-upon definition for digital assets. The bill creates definitions that will allow for uniform debates regarding digital asset regulation and ensure that all Americans are aware of the rules that impact them.
There are 10 definitions that will be defined - security, smart contract, source code version, virtual currency, Depository institution, digital asset, digital asset intermediary, distributed ledger technology, payment stablecoin, and person who offers digital asset services.
Defining Security Vs Commodity
The bill will specify which assets will be regulated by the Securities and Exchange Commission (SEC) and which will be regulated by the Commodity Futures Trading Commission (CFTC)
The bill gives the CFTC clear jurisdiction over virtual currency spot markets, which corresponds well with its present power over other commodity markets. The CFTC will regulate digital assets that fulfill the definition of a commodity, such as bitcoin or ether, which account for more than 50% of the market capitalization of digital assets.
The payment of stablecoins which are issued by banks or credit unions is neither a commodity nor security.
The bill defines the scope of digital tokens that would be subject to SEC regulation.
The CFTC would be in charge of spot market trading.
It defines fungible tokens as securities in general while arguing that non-fungible tokens (NFTs) are a distinct asset class.
Innovation In The Payments Sector, Banking Sector, And Rules Around Stablecoins
Payment stablecoins are becoming more popular and, if implemented effectively, might allow customers a speedier way to make payments. The 100 percent reserve model ensures that a stablecoin holder may always redeem the stablecoin with the issuer in return for the corresponding dollar value, ensuring that the stablecoin's value remains stable and consumers are protected from many of the current hazards in the stablecoin marketplaces.
The Federal Reserve Board of Governors is asked to study Distributed Ledger Technology and how it can be used to reduce risk in banks.
For digital asset service providers, consumer education must remain a top priority. Consumers should be better informed about the items they're buying, their rights, and the hazards of engaging in digital assets, such as source code version modifications and digital asset loans, thanks to the bill's disclosure provisions for digital asset service providers.
Energy Consumption By Digital Assets
The bill instructs the Federal Energy Regulatory Commission to investigate and report on the digital asset industry's energy use. Mining digital assets may be a time-consuming and energy-intensive process. Understanding the energy requirements of digital asset mining, as well as the inventive methods in which miners are utilizing current energy sources and generating new ones to power their operations, is critical.
Cybersecurity For Digital Asset Intermediaries
The bill directs the appropriate regulators to investigate the potential for sanctions evasion, money laundering, and terrorist financing, as well as to develop rules governing appropriate cybersecurity standards, threat identification and mitigation, security operations, auditing, and penetration testing.
It is critical that The Us take the lead in this regulatory endeavor to keep firms and innovation onshore, as well as to ensure that the United States sets the cybersecurity standards that govern the sector.
This Crypto Bill is only the beginning of bringing structure to a sector that might feel chaotic at times. The first version of the US Crypto law covers a lot of ground, but not everything. However, it's a start. There will almost certainly be a lot of debate and discussion of the bill's contents and what legislators may or may not agree on in the near future.
There are several references to investment in blockchain innovation in order to improve current infrastructure. However, no one knows how successfully the government would be able to carry out such a scheme.
Only time will tell if the contents of this bill are successful, and if they are useful in regulating, safeguarding, and fostering innovation in this space.