The U.S. House of Representatives has unveiled a new bill that will provide a “clear” regulatory pathway for the crypto industry by categorizing cryptocurrencies and defining the roles of financial authorities responsible for overseeing digital assets.
According to the 162-page draft bill, cryptocurrencies marketed as part of an investment contract will fall under the oversight of the Securities and Exchange Commission. Meanwhile, the ones categorized as commodities will fall under the Commodity Futures Trading Commission’s (CFTC) jurisdiction.
The bill explained that authorized crypto firms handling cryptocurrencies could claim those assets as commodities, but they have to provide comprehensive details about how the tokens operate. Each crypto firm also needs to prove the decentralized nature of its token by ensuring that no party controls more than 20 percent of the token in circulation. The SEC can dispute the crypto company’s claim if the federal agency can provide a “detailed analysis” to prove that the asset belongs to its jurisdiction.
The crypto bill does not allow the SEC to prevent an alternative trading system from listing digital assets that are considered securities. The SEC is also expected to “modify its rules to allow broker-dealers to custody digital assets,” according to the draft.
The draft also sets up a new category of registered crypto companies, a digital commodity exchange, which will accommodate trading for licensed crypto commodities. The CFTC has the authority to oversee the direct trading of these digital commodities.
Sources said that the bill, introduced by House financial services committee chairman Rep. Patrick McHenry and House agriculture committee chairman Rep. Glenn Thompson, is an attempt to begin discussions between Republicans and Democrats regarding the future of the crypto industry in the U.S.
Several people in the crypto community have voiced their support for the new crypto bill. Coinbase chief legal officer Paul Grewal said the bill offers a “strong foundation” for the definitions and jurisdiction regarding cryptocurrencies. Grewal also said that people in the crypto industry would perform an in-depth review of the bill.
Messari founder Ryan Selkis said the new bill is “a win” for the crypto industry after “setbacks” last year. Some prominent crypto companies, including crypto exchange FTX, announced bankruptcies last year. The situation with FTX particularly prompted lawmakers to call for more stringent action against crypto entities.
Financial authorities vs. crypto community
Over the past year, crypto proponents have said that U.S. financial authorities are trying to conduct a “crackdown” on the industry. Several crypto exchanges, including Coinbase, have been debating with financial regulators regarding the status of certain cryptocurrencies as securities.
For instance, the SEC filed a lawsuit against Ripple in 2022, saying that the crypto exchange sold $1.3 billion in unregistered securities via its native token, XRP. Coinbase also received a Wells notice from the SEC earlier this year, a warning from the federal body that the crypto exchange might face legal repercussions for offering unregistered securities.
Analysts said the actions against crypto companies in the U.S. would limit the industry’s growth. They also said that it could force these companies to move their operations offshore. As of 2023, the U.S. remains one of the top countries in the world in terms of crypto users, with around 13.7 percent of its people participating in the nascent market.
SEC chairman Gary Gensler earlier argued that the existing securities regulations are sufficient to manage the crypto industry. However, industry proponents have said that digital assets have different features from traditional securities. The crypto community also says that the SEC’s way to determine whether an asset is a security, the Howey Test, requires an upgrade.