March 26, 2023

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The CFTC, not the SECm, will regulate the crypto industry under the Lummis and Gillbrand Act

The CFTC, not the SECm, will regulate the crypto industry under the Lummis and Gillbrand Act

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The upcoming Senate proposal to subject the free cryptocurrency industry to federal oversight would pay dividends for the sector by empowering the preferred regulator, the Commodity Futures Trading Commission (CFTC), over the Securities and Exchange Commission.

The bill’s sponsors, Senators Cynthia M. Loomis (R-Wyo) and Kirsten Gillibrand (DN.Y.), are touting it as the first serious effort to apply blanket regulation to the cryptocurrency industry, which has minted a new class of billionaires and promised to reinvent financial services with a spawn. Scams and investor surveys that have alarmed regulators.

But by giving primary responsibility for oversight of cryptocurrency to the Commodity Futures Trading Commission (CFTC), the relatively small agency tasked with regulating a range of financial markets, from grain futures to more complex products, the bill – due to be presented on Tuesday – sidelines the commission. Securities and Exchanges, headed by Gary Gensler, took an aggressive stance towards crypto interests.

Gensler argues that most digital assets in a market of about $1.2 trillion qualify as securities, similar to stocks in publicly traded companies, giving his agency the responsibility to monitor these companies and their issuers.

The bill from Lummis and Gillibrand rejects that claim, asserting instead that “most digital assets are more like commodities than securities,” a joint press release from the senators’ offices says.

The CFTC already regulates futures contracts for Bitcoin and Ethereum, the two most popular cryptocurrencies. But the new proposal gives the agency broad new power by giving it oversight over the spot cryptocurrency market as well — and envisions the market encompassing a wide range of cryptocurrencies. The bill would create a process for cryptocurrency exchanges like Coinbase to register with the CFTC.

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“The United States is the global financial leader, and to ensure that the next generation of Americans enjoy greater opportunities, it is critical to integrate digital assets into existing law and harness the efficiency and transparency of this asset class while addressing risks,” Loomis said. in the current situation.

Gillibrand added that the bill “would establish a regulatory framework that spurs innovation, develops clear standards, defines appropriate jurisdictional boundaries, and protects consumers.”

Advocates of stricter regulation of cryptocurrency argue that investors will suffer if lawmakers sideline the Securities and Exchange Commission.

“The status quo would be better than this bill,” said Todd Phillips, director of financial regulation and corporate governance at the liberal think tank the Center for American Progress. “A lot of these tokens are securities and need to comply with normal and normal securities laws, and this bill is trying to create a crypto-specific disclosure regime that I don’t think reveals all the information investors need to fully assess whether they want to buy a security.”

Crypto industry sources have said they expect the introduction of the bill to begin a lengthy legislative process, a process that will almost certainly extend into next year and likely lead to significant revisions.

However, the heads of crypto lobby groups praised the unveiling of a scale that the industry has been building over the course of months to shape behind the scenes.

The bill “represents a watershed moment for crypto policy and a major step forward for the crypto industry in Washington,” said Kristen Smith, executive director of the Blockchain Association. Brian Boring, chief executive of the Chamber of Digital Commerce, called it an “essential and comprehensive start.” Sheila Warren, CEO of the Crypto Innovation Council, said the bill represented an “important step forward. The crypto community has called for greater regulatory clarity, and we look forward to continuing to collaborate with policymakers across the political spectrum in the next stages of discussion and future work.”

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