Itt’s been a rough month for the crypto world, which has faced market crashes, layoffs, lawsuits from regulators and rising rhetorical pushback from critics. Two U.S. Senators presented a bipartisan bill on June 7 that could open the door to increased adoption and growth of crypto.
The Responsible Financial Innovation Act, proposed by the New York Democrat Kirsten Gillibrand and the Wyoming Republican Cynthia Lummis, aims to “take a light regulatory touch,” Sen. Lummis said at the DC Blockchain Summit last month. Lummis believes it will encourage innovation and provide enough protections for consumers. While some crypto insiders are excited about the bill’s potential, skeptics fear it will allow too much leeway in an industry rife with fraud and financial crime.
Most experts believe that the bill’s chances of passage before the midterm elections are extremely slim. These are the main components of the bill.
For crypto-users, tax benefits
Tax filing for crypto users can be extremely onerous, and Gillibrand and Lummis’s bill attempts to help ease those difficulties. According to this bill, it is no longer necessary to file a tax report with the IRS if you buy goods and services less than $200 using crypto. It would be easier for example to purchase a coffee in Bitcoin. The bill also walks back a provision in last year’s infrastructure bill that hit crypto miners with heavier taxation.
Although crypto users lauded these actions, Omri Maria, University of California Irvine School of Law professor of tax law, also wrote about them on Twitter that the bill “gives crypto a tax preference that no other asset has.”
Regulation of stablecoin
Last month, the collapse of the UST stablecoin—which was supposed to hold a dollar peg but has dropped to one cent in value—raised many concerns about riskier stablecoin models (including algorithmic ones like UST) and how they should be regulated. The bill hopes to assuage some of those fears by creating an oversight framework for stablecoins (although, the term “algorithmic stablecoin” isn’t even mentioned).
The bill calls for stablecoin issuers to prove that they’re backed by U.S. dollars, and to be able to reimburse their users in full at any given time. The bill also empowers the U.S. Treasury with authority to enforce sanctions against stablecoin issuesrs. Cody Carbone, the director of policy at the DC-based crypto lobbying group Chamber of Digital Commerce, told TIME that the bill outlines “the proper controls and audits we need to make sure that [stablecoins] are safe and usable.”
Research on Energy and 401(k).
The bill also mentions two areas of crypto that have been hotly contested recently: crypto’s impact on the environment and its potential inclusion in retirement accounts. The bill first asks for the Federal Energy Regulatory Commission (FEC) to prepare a report about cryptocurrency mining. This was stopped in New York State just after a heated debate. It also requests that a government watchdog be established to investigate the opportunities and risks of allowing employees crypto investment with their 401k retirement accounts. This has been criticised by Senator Elizabeth Warren.
CFTC, Take the Wheel
At this moment several governmental bodies are trying to control crypto. These include the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission. Gary Gensler (SEC Commissioner), has been critical of crypto throughout the years. He argued that many cryptocurrencies are security-compliant, and would place them in his jurisdiction. Under Gensler’s tenure, the SEC has taken action against some significant crypto projects—including the currency Ripple and the lending platform BlockFi.
Gensler’s tactics have frustrated many crypto insiders. Many believe that the solution is to regulate cryptocurrencies by the CFTC. This is smaller than the SEC and is more friendly to cryptocurrency in the past. Similarly, this bill aims to give them, not the SEC, more power— by defining most currencies as commodities, much like wheat or oil. Any cryptocurrency hoping to be registered as a commodity would have to be sufficiently “decentralized,” although that descriptor is fairly murky.
Marking cryptocurrencies as commodities would theoretically open the door to much faster growth, and it would pave the way for a bitcoin ETF (exchange-traded fund), which would allow less technically-sophisticated investors to jump into crypto. But critics worry that the CFTC doesn’t have the ability to combat the space’s fraud and bad actors. “Giving the CFTC jurisdiction over crypto is like New York City outsourcing crime fighting to a small-town police force,” Dennis Kelleher, a co-founder of Better Markets, a financial reform advocacy group, told CNBC.
However, a CFTC-controlled crypto community won’t mean a complete free-for-all. The agency filed suit against Gemini, a major cryptocurrency exchange, last week accusing them deceiving regulators.
Reactions to bill
The bill’s announcement provoked a mix of reactions from both inside and outside the crypto community. Hilary Allen, a prominent crypto skeptic and a professor at American University Washington College of Law, wrote on Twitter that the bill gives “the crypto industry pretty much what it wants, but it doesn’t honor the regulatory goals that [Democrats]Prioritize. ” She expressed concerns about the lack of cybersecurity stipulations in the bill, writing: “What about testing the software for basic quality control/fitness for purpose? We do this for aviation software —we should do the same if our financial system is going to run on it.”
The bill was also met with some concern by crypto-lovers. Adam Cochran, who runs the venture fund Cinneamhain Ventures, believes that the bill’s passage would lead to “significant growing pains.”
“Right now as written, a lot of the compliance standards are cumbersome and costly. They’d put undue burdens on emerging startups, smaller players and international entities that would squeeze out competition in the space,” he wrote in an email to TIME.
Carbone, at the Chamber of Digital Commerce, disputed this characterization, arguing that the bill would “give a path to some of our innovative experiments to really grow.” Carbone says the Digital Chamber was highly active in drafting the bill, calling it a “collaborative effort with those two offices and the industry in writing this thing.”
While Carbone and the rest of the Digital Chamber have high hopes for the bill, it’s highly unlikely to be passed any time soon. Before the bill can be brought to a full chamber vote, it must pass at least three Senate committees. There’s a possibility it could be broken into smaller bills. Both inside and outside the crypto community are likely to be more vocal and more heated, particularly if the cryptocurrency economy continues its slide.
Nevertheless, the bill’s introduction serves as a major landmark for an industry trying to grow out of its Wild West phase. “We’re extremely excited,” Carbone says. “It’s a large bill, and it’s a beast: it covers almost all aspects of the digital asset and blockchain industry. It’s not the final step in getting sound, balanced clarity in this space, but it is a great first step.”
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