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The Lummis-Gillibrand bill would for the first time regulate crypto

Updated: Sep 26, 2022

Two senators, one Republican and one Democrat, have presented legislation that would govern digital assets, blockchain technology, and cryptocurrencies for the first time in the United States.

The Responsible Financial Innovation Act, announced by Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) on Tuesday, would "create a comprehensive regulatory framework for digital assets that promotes responsible financial innovation, flexibility, transparency, and robust consumer protections while integrating digital assets into existing law," according to a joint press release.

Under the terms of the measure, which the two senators have dubbed "Lummis-Gillibrand," cryptocurrencies such as bitcoin and ether would be categorised as commodities and regulated by the Commodity Futures Trading Commission (CFTC). According to the senators, such cryptocurrencies account for over half of the projected $2 trillion market valuation for digital assets.

Stablecoins, which are digital assets whose values are fixed to a fiat currency such as the dollar, euro, or another real asset, would be subject to stringent restrictions governing how these assets are stored and how stablecoin owners may redeem their coins for their dollar/euro counterpart. The measure would also provide a framework for banks and other financial organisations to issue stablecoins, without mandating that all stablecoin issuers be regulated similarly to banks.

The CFTC has previously issued enforcement proceedings in the stablecoin industry, such as the $41 million punishment it imposed on Tether in October 2021.

Wednesday, the New York State Department of Financial Services (NYDFS) published its own regulatory advice requiring stablecoins issued by NYDFS-regulated firms to be backed by enough reserves. Since 2018, NYDFS-regulated organisations have been permitted to issue stablecoins.

According to the law, such digital asset offerings that are neither commodities nor securities would be required to submit disclosures to the Securities and Exchange Commission (SEC) twice each year. The bill would also establish a procedure by which a digital asset or coin could demonstrate that it has become decentralised — that is, that its value is no longer dependent on the entrepreneurial or managerial skill of its creators, that it is not a debt or equity instrument, and that it no longer creates rights to profits or liquidation preferences — in order to stop disclosing information to the SEC and be regulated as a commodity by the CFTC.

The law would also force digital asset service providers to provide some information.

“The United States is the global financial leader, and to ensure the next generation of Americans enjoys greater opportunity, it is critical to integrate digital assets into existing law and to harness the efficiency and transparency of this asset class while addressing risk,” Lummis said in the press release.

In the United States, digital assets like cryptocurrencies exist in a regulatory limbo. There are no agreed-upon definitions of the many types of digital assets that would allow businesses, investors, and the market to comprehend what these investments are intended to do, how they are intended to behave, and if their returns and strategies mirror those of traditional investments.

The outcome is managed disorder. Certain digital assets cannot be lawfully marketed to U.S. residents, and while the cryptocurrency industry's worth has skyrocketed since 2017, it is plagued by dramatic price fluctuations and brazen thefts and frauds. Even worse, in the absence of adequate regulation, U.S. consumers with valid concerns have no external authority to turn to, and victims of fraud have no recourse when their money disappear.


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