On Tuesday, U.S. Sen Cynthia Lummis introduced bipartisan cryptocurrency legislation that she believes may revolutionize the way these assets are regulated in America.
The Responsible Financial Innovation Act creates a more complete regulatory framework for digital assets and their oversight. By providing definitions to terms and clarifying which digital assets are securities and commodities, the legislation aims to provide better protection for both crypto companies and consumers, Lummis said in a press release. The bill also addresses federal jurisdiction, business requirements, and the treatment of digital assets for tax purposes.
Since digital tokens were first created more than a decade ago, these assets have grown into a $1.2 trillion industry. Proponents of the currency say it leads to innovation and economic growth and democratizes financial markets. Detractors say it is woefully under regulated and point to numerous instances where fraud has been committed.
“As with any new technology, there are real risks to consumers, businesses, national security, and our financial system,” wrote Sen. Kirsten Gillibrand (D-N.Y.) in a Monday op-ed for Medium. Gillibrand co-sponsored the legislation with Lummis. “These risks make sound regulation key. Furthermore, without a clear and defined regulatory framework to guide their businesses practices, digital asset companies could be compelled to take their operations overseas.”
Gillibrand serves on the Agriculture Committee, which oversees the Commodity Futures Trading Commission (CFTC), and Lummis serves on the Banking Committee, which oversees the U.S. Securities and Exchange Commission. The bill will assign regulatory authority over digital asset spot markets to the CFTC. The CFTC already regulates the two most popular cryptocurrencies – Bitcoin and Ethereum – but the bill gives it much wider power and oversight.
The bill is in some ways may be a favorable compromise for the crypto industry. By giving primary oversight of crypto to the much smaller CFTC, the bill shields the industry from SEC Chair Gary Gensler and his agency. Gensler has stated that most digital assets should be treated as securities. A joint press release issued by the senators refuted this point, claiming “most digital assets are much more similar to commodities than securities.”
Many leaders in the cryptocurrency market have praised the bill. The Lummis and Gillibrand teams are still working with industry members to see how the bill can and should be improved.
Sheila Warren, chief executive of the Crypto Council for Innovation, collaborated with Lummis and Gillibrand in crafting the legislation and called the bill a “significant step forward.”
“The crypto industry has been asking – pleading – for reg clarity to help users distinguish legit opps from scams,” she said in a June 3 Twitter post. “Instead, we’ve gotten ignored submissions, enforcement actions v. legit actors, and silence. We stand ready to collaborate to ensure safe, inclusive growth for all.”
Todd Phillips, director of financial regulation and corporate governance at the left-leaning think tank Center for American Progress, spoke out against the bill on Twitter on Tuesday.
“It is a big improvement over Lummis’s original bill but is still highly problematic,” he said. “My take: The status quo is better than this bill and it’s not a compromise I’d accept.”
Phillips said the final bill is littered with tax and security law loopholes and creates certain risks for consumers, giving an advantage to crypto over existing financial services, harming investors.
Over the past five years, Lummis has been one of the most vocal supporters of crypto at the national level.
According to the joint press release, the bill “is the most substantial and comprehensive bipartisan effort to provide certainty and clarity to the growing digital asset and blockchain industries.”
“It is critical to integrate digital assets into existing law and to harness the efficiency and transparency of this asset class while addressing risk,” Lummis said in the press release.
The Responsible Financial Innovation Act has been many months in the making, with a draft bill surfacing last year, said Tyler Lindholm, State Policy Director for Lummis.
Lindholm said Lummis was first introduced to cryptocurrency by her son-in-law Will Cole in 2013, who currently works in the crypto industry. She kept her eye on the industry and about five years later started pushing for Wyoming to offer friendly laws for the industry.
It was also around that time Lindholm was a representative in the Wyoming Legislature, helping pass laws accelerating Wyoming’s place on the international stage as a cryptocurrency and blockchain leader. One bill exempted certain developers and businesses from securities and money transmission laws. Another offered a charter for banks that deal mainly in digital assets.
When Lummis announced her campaign staff in 2020, she brought on Lindholm, already known as a leader with the Wyoming crypto movement and dubbed the ‘Crypto Cowboy.’
Lindhold said Wyoming has some of the most crypto-friendly laws in the country. The Cowboy State recently attracted Kraken, the second-largest crypto exchange in the U.S., to the state. Federal Reserve Chairman Jerome Powell has denied Kraken and Wyoming’s other upstart crypto banks accounts through the central bank.
Lindholm said the bipartisan nature of Lummis’ bill should give hope that Republicans and Democrats can still come together to get things done in Washington, D.C.
“The senators wanted to ensure the legislation was bipartisan and did work across the aisle,” Lindholm said. “It’s the first piece at the federal level anybody had done. They wanted to ensure it did not become a partisan issue.”