The U.S. crypto bill introduced on Tuesday proposes the classification of decentralized digital assets as commodities, placing it under the purview of the Commodity Futures Trading Commission (CFTC), but that has left some open questions for regulators and stakeholders, a blockchain legal expert told Forkast.
The bipartisan bill led by U.S. Senators Cynthia Lummis and Kirsten Gillibrand, known as Responsible Financial Innovation Act, captures tax implications, securities, commodities, laws, and banking regulations.
Governments around the world have been accelerating crypto-related regulatory developments since the Terra-LUNA crash wiped out an estimated US$40 billion from the market, with Japanese legislators passing the world’s first bill to provide stablecoin investors with legal protection on Friday.
“Right now, [lawmakers are] trying to work out with the regulators, into what jurisdictions the assets [digital assets] fall under,” Lilya Tessler, Sidley Austin Head of FinTech Blockchain Group, told Forkast Editor-in-Chief Angie Lau.
For crypto assets, the line between commodity and security can be difficult to define. The U.S. Securities and Exchange Commission (SEC) has been in a heated legal battle with Ripple Labs since December 2020, which the agency alleges has conducted US$1.3 billion unregistered securities offerings.
The SEC has reportedly opened another investigation on whether Binance’s 2017 initial coin offering of cryptocurrency was in violation of securities rules.
According to Tessler, the bill doesn’t phase out a single agency’s oversight of digital assets, but determines the life cycle of an asset during a certain transaction.
“Eventually, it’s going to be how can you acquire [a digital asset],” Tessler said. “Can you acquire it through your commodity trading firm or through a cryptocurrency exchange, or do you need to acquire it through a brokerage account and securities broker dealer?”
The legislation requires the disclosure of ancillary assets for a certain amount of time, and then at some point, that asset would be treated as a commodity under CFTC regulations, according to Tessler.
The blockchain legal expert said a big part of the legislation’s “act two” will be turning an eye to the intermediaries and how they can incorporate digital assets compliance.
“It’s definitely something that global and non-U.S. regulators are watching,” Tessler said.
The bill is not expected to pass the Senate right away, as U.S. lawmakers prepare for the November midterm elections.