New Crypto Regulations Proposed | Bipartisan Bill Proposes Traditional Financial Regulations Under CFTC?

5 min read

Lummis and Gillibrand’s crypto bill will set the tone for how US sets rules for crypto in the coming years.  The crypto lobbying pace has already become frenetic and this will amp it up.  The author shares that these Senators are seeking input from all sides and the question of ‘who will hold sway’ is definitely an unknown.

Cynthia Lummis speaks during the Bitcoin 2022 Conference.
been teasing the contents of her comprehensive digital currency regulation plan for much of this past year. | Marco Bello/Getty Images

The most highly anticipated legislation in the history of cryptocurrency is about to make its debut, after months of hype drummed up by Sens. Cynthia Lummis and Kirsten Gillibrand.

Lummis, the first-term Wyoming Republican who’s enthralled the Bitcoin faithful with appearances at crypto festivals across the country, has been teasing the contents of her comprehensive digital currency regulation plan in a series of podcast appearances, industry gatherings and high-profile media appearances for much of the past year. Gillibrand, a New York Democrat, hopped on the hype train as a co-author in March, giving the effort a new sheen of bipartisanship.

The campaign has fueled a lobbying bonanza on the part of digital asset startups, venture capitalists and consumer watchdogs. They want to put their stamp on a sweeping bill that Hill aides and industry insiders believe will set the tone for how Congress writes the rules for crypto in the coming years, even if it likely stands no chance of becoming law in the form that Lummis and Gillibrand plan to release Tuesday.

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“This is the starting point for discussions about what the law should look like,” said Miles Jennings, crypto general counsel and head of decentralization at Andreessen Horowitz, the Silicon Valley venture firm that’s a major investor and lobbying force in the world of digital assets. “I think that is one of the reasons we’re excited about it.”

The contents of the bill will likely shed light on who holds sway in the ever-expanding universe of crypto lobbying. It’s already been the source of clashes between the industry’s growing set of trade associations backed by competing digital asset startups. Aides from both lawmakers’ offices say they’ve been swamped by incoming suggestions on how to approach everything from crypto exchange regulations to tax policy.

It’s one of several crypto bills that lawmakers have begun to draft as companies jockey for influence.

Gillibrand on regulating crypto

“It’s hard to pay attention to things that are abstract and, for most members of Congress, this has been abstract for a long time,” Lummis, who’s owned Bitcoin since 2013, told the crowd at the Bitcoin Miami conference earlier this year. “That has changed dramatically in the last 12 months — and part of that’s thanks to you all.”

Crypto skeptics warn that the frenzy around the bill is part of an intensifying push by crypto firms to convince lawmakers to shield them from regulations that apply to traditional finance.

Both senators are vying to make their respective states hubs for a blockchain-based economy. State lawmakers in Wyoming have charted an aggressive course in crafting new laws to accommodate crypto banks and decentralized trading platforms. In the Empire State, New York City Mayor Eric Adams has sought to attract digital asset businesses by investing his early paychecks in bitcoin and ether.

“New York is the center of world financial markets,” Gillibrand said at a POLITICO Live event with Lummis earlier this year. “This is one of the greatest growing industries that New York definitely wants to have a part of.”

A leaked draft of the bill, which Lummis said dates from before Gillibrand announced her involvement, set off alarm bells with the Center for American Progress, a left-leaning think tank. The group’s director of financial regulation and corporate governance, Todd Phillips, said that it would have created new avenues for token-based startups to skirt securities laws and have allowed investors to duck taxes on crypto transactions where they gross less than $600. Securities and Exchange Commission Chair Gary Gensler has repeatedly argued that most digital assets likely fall under his agency’s jurisdiction, putting him at odds with industry executives who want to steer clear of the agency.

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“The challenge with creating any legislation on digital assets is, most if not everything is covered by existing law. The question then becomes, what are you trying to get by drafting this new legislation?” said Ty Gellasch, a former SEC official who is executive director of the investor advocacy group Healthy Markets. “The industry effort doesn’t seem focused on getting clarity, but rather getting loopholes.”

The bill’s planned release on Tuesday is likely to set off clashes between industry groups, crypto watchdogs and academics over the details. In addition to new rules for trading platforms and crypto service providers, the bill is also expected to cover issues relating to cybersecurity, banking regulation, investor protection standards and stablecoins.

Kara Calvert, the head of U.S. policy at the publicly-traded crypto exchange Coinbase, described both Gillibrand and Lummis as having an “open door” policy when it came to taking feedback on specifics. She said it put the congressional staff tasked with writing the bill in a position where they’re “balancing what their bosses want and what they’re getting from stakeholders.”

An earlier draft of the bill included language that would have established self-regulatory organizations for the industry — a proposal sought by the Association of Digital Asset Markets (ADAM) but flagged as potentially cumbersome by the Blockchain Association. ADAM is backed by FTX, a crypto exchange led by political mega-donor Sam Bankman-Fried. The Blockchain Association’s members include trading platforms and Kraken.

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“[Lummis and Gillibrand] want to make sure that they are getting things right from an industry standpoint and also from a consumer protection standpoint,” ADAM CEO Michelle Bond said in an interview. “I just don’t know where this will ultimately shake out.”

In public appearances, the two lawmakers have sketched out the broad contours the bill’s policy aims. They want to exempt Bitcoin miners from rules covering financial brokerage firms and give the Commodity Futures Trading Commission — a smaller sister agency to the SEC that polices financial derivatives markets — more authority to oversee crypto markets.

The specifics of those provisions will matter just as much as topline description.

Jennings, with Andreessen Horowitz, said he expects industry players to be disappointed by how much leeway the bill could give the SEC to decide whether certain digital assets are securities. Crypto executives have criticized the agency’s leadership for its tough approach to digital currency trading.

Hill staffers who’ve worked on the bill said both the SEC and CFTC have weighed in.

Crypto attorney Lewis Cohen — who advised Lummis staff on the bill — said it was a near-impossible task to balance the concerns of industry bigwigs and regulators.

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“Reflexively treating all tokens as securities, I really do believe it’s both wrong legally and fundamentally bad policy for the U.S.,” said Cohen, co-founder of the firm DLx Law. “But just ignoring the SEC’s concerns is wrong legally and bad for the U.S.”

Lobbying efforts will likely accelerate and expand in the coming months. At a recent industry conference in Washington, Lummis and Gillibrand said as many as four Senate committees would have jurisdiction over their legislation, if it ever came to a vote.

“This is going to be a big focus of debate,” Blockchain Association Executive Director Kristin Smith said in an interview. “If this is a needle that can be threaded, then [it’s] going to be a really pivotal moment in the ecosystem.”

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