Senators Introduce Bill to Completely Overhaul U.S. Crypto Regulation

Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) have unveiled a new bipartisan bill concerning crypto regulation. Dubbed the Responsible Financial Innovation Act, the bill represents the most comprehensive piece of crypto legislation to date, introducing a swath of provisions that—if passed—would affect all corners of the industry.

Senators Unveil Landmark New Crypto Bill

Months after being announced, the long-awaited landmark crypto bill has finally hit the streets.

On Tuesday, U.S. Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced a comprehensive new crypto bill, dubbed the Responsible Financial Innovation Act, that seeks to completely overhaul the digital assets industry and its relationship with regulatory agencies in the U.S. The bill represents the first major effort to gain Senate approval for an all-encompassing regulatory framework that would introduce much-needed regulatory clarity on crypto issues. Commenting on the initiative in a statement, Senator Lummis said:

“The Responsible Financial Innovation Act creates regulatory clarity for agencies charged with supervising digital asset markets, provides a strong, tailored regulatory framework for stablecoins, and integrates digital assets into our existing tax and banking laws.”

The 67-page bipartisan draft bill contains provisions aiming to settle the most consequential questions currently hanging over the crypto industry, including setting a clear line between crypto securities and commodities and outlining the purview of the specific enforcement agencies tasked with regulating them. Specifically, the Lummis-Gillibrand bill would clear most cryptocurrencies, including the biggest ones like Bitcoin and Ethereum, as commodities and grant the CFTC primary authority over the crypto spot markets. This means that the SEC, which has been long trying to expand its regulatory reach into the crypto industry, could be left sidelined and with limited oversight powers.

If enacted, this aspect of the bill would generally be considered a notable win by the industry, which has openly favored the CFTC over the SEC due to the latter’s aggressive posturing toward industry stakeholders and its failure to provide any regulatory clarity concerning the legal nature digital assets.

The bill also seeks to liberate crypto payments for goods and services not exceeding $100 from capital gains tax. The tax-exempting provisions exclusively apply to “personal transactions for goods and services,” and not transactions that convert “digital assets to cash, digital assets to digital assets or digital assets to other financial assets.” Interestingly, an earlier draft of the bill had initially set the limit at $600.

Another notable provision concerns decentralized autonomous organizations, which the bill defines as “a business entity which is not a disregarded entity,” and “an organization which is properly incorporated or organized under the laws of a State or foreign jurisdiction as a decentralized autonomous organization, cooperative, foundation or any similar entity.” It’s worth noting that the provision doesn’t require DAOs to incorporate under the laws of a recognized jurisdiction but instead gives them the option to incorporate for tax benefits. The condition doesn’t preclude DAOs from continuing to exist unincorporated.

The bill further clears up the definition of a crypto broker to protect wallet providers, software developers, miners, and validators from being ensnared by cumbersome tax reporting requirements. More notably, the Responsible Financial Innovation Act sets a high and clear standard for stablecoins, allowing depository institutions like banks to issue them and requiring 100% asset backing for all stable crypto assets.

While the bill is said to have little chance of passing in the Senate in its current form, it will likely spur a much-needed debate over the encompassing issues among legislators, industry experts, stakeholders, and lobbying groups on opposite sides of the discussion.

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.